Last Updated 02 Aug 2020

Zappos.Com: Developing a Supply Chain to Deliver Wow

Category Zappos
Essay type Research
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?Philip Dackweiler . Ingen de1 af nogen bog ma reproduceres eller gengives pa nogen made uden udgiverens forudgaende tilladelse. Brug (ud over kvalificeret og rimelig anvendelse), som er ulovlig eller overtreder servicevilkarene, er forbudt. De personer, der foretager en sadan overtrredelse, vil blive retsforfulgt, i det omfang loven tillader det. Kein Teil eines Buchs darf ohne die vorherige Zustimmung des Verlags kopiert oder ubertragen werden, ganz gleich, mit welchen Mitteln dies geschieht. Eine andere Verwendung als die gesetzlich oder in den Servicebedingungen festgelegte Verwendung ist verboten.

Bei Zuwiderhandlung werden gerichtliche Schritte eingeleitet. Zappos. com: Dqveloping a Supply Chain to Deliver WOW! STANFORD GRADUATE SCHOOL OF BUSINESS "^'*:bff:,3; Zeppos. coM: DevnloprNc A SuFpLy CHArN To DELTvER wow! Our rleckion r**s a/r+'erys to focur on ser"r,ir:s bet*tuse we gal instunl feet{be& whenever we delivery. Customers were wawed by the experienrc, and rhxn they told a banch of peaple. And u'ord of mouth *'arh. s u lat faster on the Internel than it dots persfln'to-pr:rscn because you cun jus! e-ft? ui{ out a bunclr af your friends and say, 'hey I just hatl lhis ilmuzing expericnte. That wan ene ofthe re^qons that we wanted ta fteep upgrading shipping. Lin. Chairman. CuO. and CFO of Zaonas' -Alted In late 2008, iess than tr0 years after its founding, Zappas anticipated reashing annual gross sales of Sl billion, When its founder first proposed the idea of selling shoes online, the coucept was greetcd with intense skcpticism. Despite the chailengos, the c$mpany had achieved dramatie success. It was the world's largest online retailer of shoes, was profitable, growing rapidly, and had an outstanding reputation for customer service.

Its employees were passiouately. engaged in their work. While shoes still provided the vast uajuriry of reyenues, Zappos had expanded its product offerings based on feedback &om custcmers and the enthusiasm of employees. There was still a huge untapp€d sustomer base*cnly 3 percent sf the U. $, population were Zappos customers-suggesting that the cornpany was not close to saturatirg its lpportunitics in the u. S. , lel alone other international regions. However, the c*llapse of the financial markets, and the prospeut of a prolonged re*ession. created new chaileng*s.

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Zappos had never been lavishly funded-it had always been intcnscly conscious of cash. Unlike most relailers, il was continuing to grow, but early signs were that the rate sf grCIwth was slowing. As rhe eompany's leadership looked forward, it considered ways that Zappos could sustain the high quality expcrience that it was known for-to deiiver "w-ow" ro its customers. supplitrs, and othqr affrliates. The cornpany's supply chain management had cvolved as Zappos had grown, and was one of its sources of excellsnce. Yet, perhaps therc were opporhrnities fur continued irnprovement. Qrotations are from interviews with the auihor. unless orherwise specified. David Hoyt prepared this case uader the suprrvision sf Michael Marks, Lecnrrer in Operarions, Information, and Technology, and Professor Hau Lee as the basis fsr class discussion rathcr than to iiluEtxare eithrr effective or ineffective handling of an administrative *ituation. Copyright Q 2AU9 by the Eoard olTruslees of the Letand Stan{ord Juniar Unive. rsig,. All rights resen'ed. To order copies or requesl Feftnission ta repraduce nurt$ri? ls, e-mail the Cue Writing A"ffiee at: r*. @gso. slanlord. etfu ar write: Case Wriling Affirc, Stuttford Gruduttle Sthoal af Business, 5I8 Memorial lllay, Stanlard University, Stunford, CA 9#A5-SAI5. Na part of this publieatian may be repraduced, stored in d rrtrievul system, used in a sprudslseet, ar transmilted in any form ar by any means * alecffanic, meehanical, pfuttotopying recording, or olherwise - wirhaut the permission af ths Sturlford Gruduate Schaal af Business. ?Philip Dackweiler . Ingen del af nogen bog ma reproduceres eller gengives pa nogen made uden udgiverens forudgaende tilladelse.

Brug (ud over kvalificeret og rimelig anvendelse), som er ulovlig eller overtreder servicevilkarene, er forbudt. De personer, der foretager en sadan overtredelse, vil blive retsforfulgt, i det omfang loven tillader det. Kein Teil eines Buchs darf ohne die vorherige Zustimmung des Verlags kopiert oder ubertragen werden, ganz gleich, mit welchen Mitteln dies geschieht. Eine andere Verwendung als die gesetzlich oder in den Servicebedingungen festgelegte Verwendung ist verboten. Bei Zuwiderhandlung werden gerichtliche Schritte eingeleitet. Case Studies in lnternatisnal Marketiog Management

Zappos,caa: Developing a SapplS Chain ta ueliver lf0l$! : 6,3-65 p. 2 Zarpos. con In 1999, Nick Swinmurn was frusffated in linding the right size, color, and style of shae. After trying several stores, he felt there must be a better way. Stores carried e relativeiy smail selection of styles. and usually did nol have a full compiemsnt of colors and sizes eveil fi:r the styles they did stock. This was not surprisiug considering the physical constraints of shae storesr the lirnited number of shoes that an ayerage store could stock, and the small lac*l population sened by individual storcs.

But this was 1999, and the Intemet bosm was in full swing. lf Swinmura, who was an ordinary $hoe customer (not a shoe fanatic), was frustrateq it seemed likcly that many others rnust be feeling the same way. What consumcrs nseded was a way to access a huge selection of stylcs, culors, and sizes. Since nsne existed, Swinmurn decided tu create one, using the Internct to addrsss the selection problems faeed by traditional shoe retailers--despite having no experience in retail, let alone the shoe industry. Raising Capital Swinmum raised 5150. 000 frorn family and friends and recruited Fred Mossler, a senior shoc buyer at Nordstrom, to join him.

Swinmun tried to raise venture capital, but had difficuity finding investors willing to put in large arnounts of money. Onc of the venturc firms that he approached was Venture Frogs, foundcd by Tony F{sieh and Alfred Lin. Hsieh was a young Harvard graduate, rvho had cofounded an laternet advertising firrn ealied Link Exchange with Sanjay Madan, a college roornmat€. They sold the company to Microsofl for $? 65 million in 1998, when Hsieh was 24. Lin hadbeen a friend uf Hsieh's at Harvard {and a custumer of Hsieh and Madan's college pizza-making business}, who left a PhD program at Stanford University to join Hsieh at l-ink Exchange.

Hsieh and Lin then founded Venture Frogs, which funded Internet siart-ups, including companies sueh as AskJeeves. Tellne Networks, and Zappos. ln 1999, at the height of the Intcrnet bcor'. 1 Swinmum leli a voicemail with Venturc F? ogs, explaining *rat he had started a cumpany to sell shoes on the lntemet. As Hsieh and Lia were about to hit the delete button, thinking that this "sounded like the posrer chiid for bad lntemct business ideas,"' Swinmum said that the shoe market in the United States was S40 billion, and that 5 percant of this business was being done by mail order.

Hsieh and Lin realized th-at if people bought $2 billion of shoes from catalags, tbe lnternet-with its capacity to rcach large sections of tho population and to provide detailed information vastly better than a catalog could-was going to be a substantially larger market. They decided to invest, putting about $2 miliion into the cumpany over the next fcw years. Hsieh also invested pcrsonally in Zappos {whose name was an adaptation of thc Spanish word for shces, "zapatos"}. Latcr, Sequoia Capital, a premier Silicon Valley vsnture firm, also invested in the company. While Hsieh, Venture Frogs. nd Sequoia put money into the company, Zappos was never funded on the lavish scale of lnternet start-ups such as WebVan*the total investment in the ' Hsich quoted in Duff McDonald, "Sole Purposc," CIO /nsr'gA1, November ? 006, p. 45 ? Philip Dackweiler . Ingen del afnogen bog ma reproduceres eller gengives pa nogen made uden udgiverens forudgaende tilladelse. Brug (ud over kvaliltceret og rimelig anvendelse), som er ulovlig eller overtreder servicevilkarene, er forbudt. De personer, der foretager en sadan overtredelse, vil blive retsforfulgt, i det omfang loven tillader det.

Kein Teil eines Buchs darf ohne die vorherige Zustimmung des Verlags kopiert oder uberragen werden, ganz gleich, mit welchen Mitteln dies geschieht. Eine andere Verwendung als die gesetzlich oder in den Servicebedingungen lestgelegte Verwendung ist verboten. Bei Zuwiderhandlung werden gerichtliche Schitte eingeleitet. Zappos,cor*: Developing a 9uppiy Chain tu treliver WOW! Zappos"ro*: D*eloping a Sappty Chain to Daliver lf0l*! : GS-65 p. -l c$mpany was less than Sl0 million for the first five years of the company's existence.

Sequoia Capitai would later lead an investrnent round r:f $54 million, ssme of whirh was used to buy out early inve$tors. In tire long run, the lack of sub$tsntial funding was a benefit-Zappos was forced to focus on those factars which were essential to success, operate effrcienfiy, and avoid the excesses that led to {bilure for many other Internet srart-ups, The difucult challenge of cr€ating I sucffssful online shoe retailer, which inhibited access to large-scale investment, had another advantage-lack tf competition.

As Lin said, "It was act$lly tsmpting to invcst in a company where everyone thought this couldn't be done, bccause you knew that in the early stages, ycu were no1 going to have a lot of competition. " However, in the shsrt run the relalively low funding raised by the company was painful-thue were times when employees worked for months without paychecks in ordcr to help thc company survive. Financisl Success Aftcr investing, I{sieh began to work closely with Swinmum, and in ? u00 they became co= CEOs. Lin joined as CFO in 2005, later adding the roles of COO and chairman. Swinmurn left Zappos in 2u06, and Hsieh became the sole CEu.

Zappos had strcng growth from its first sales througb 2008, when it expected grcss merchandise saies of S I billion {Exhibil l). This strong growth was largely depcndent an a happy, loyal custorncr base. As thc compauy developed, the percentage of repeat customers grew-from 40 percenl in 20043 to 75 percent in 2008. " Hsieh viewed this as essential for sustained sucuess, saying, o'Yuu can get arryon€ to buy ftom you once.... The hard part is getting people to buy from you again and again. "' Zappos became profitable in 2006. but did not have an objective af maximizing profit, preferring to invest in grcwing the cornpany.

That year, Zappcs wss able to achieve gross margins of 31 percsnt, even after shipping and returns (with more than one in four orders returned). b Shipplng, both sutbomd a*d for return$, was a substantiai part of the company's cost sBucture, at abuut S100 rnillisn.? or almost 17 pcrcent of the company's gross sales of i:g: *iltioo in 2006. This percentage had remained relatively constant over time, despite increasing return ievsis and deueasing delivery times. In latc 2008, Zappos had about 9 million eustomsrs*_a iarge aumber, but just 3 percent of the U. S. population, leaving plenty of roorn lbr continued growth.

It had about 1,5uu employees, half in its Nevada headquarters and call certer, and half in its Kenrucky fulfillment c€nt€r. The colnpany was still private, with no immediate plans for an IPO. ' Richard Waters, "Trial and Enor Shows the Fath to Success," The Financial ? 'imes, March 9, 2005, p. 9. Zappos delined repeat customers Es eny cuslomer that had prcviously purchascd from tbe compary. * Jeff Morris, "service a 'Shoe-In' for Zappos. com," Maltichannel Merchant. April 2008, p. 7. 5 Anhur Zaczkiewicz, "Zappos Sells Service," Itomen's lfr. ar Oaily, November trS, 2{S6. p. 24. t Watsrs, loc. cit. Sidru Pu. rt "Shoe In,'" Blsin*"r,r 2. u, Decenber ? u06, p. 54. ?Philip Dackweiler . Ingen del afnogen bog ma reproduceres eller gengives pa nogen made uden udgiverens forudgaende tilladelse. Brug (ud over kvalificeret og rimelig anvendelse), som er ulovlig eller overtrpder servicevilkarene, er forbudt. De personer, der foretager en sadan overtradelse, vil blive retsforfulgt, i det omfang ioven tillader det. Kein Teil eines Buchs darfohne die vorherige Zustimmung des Verlags kopie* oder ubertragen werden, ganz gleich, mit welchen Mitteln dies geschieht.

Eine andere Verwendung als die gesetzlich oder in den Servicebedingungen festgelegte Verwendung ist verboten. Bei Zuwiderhandlung werden gerichtliche Scfuitte eingeleitet. Eoppos,tam: D*elaping a S*ppty Chein ta Dcli*er WtlW! : GS-of Ccrporate Culture and VflIues p. 4 Zappos had a strong company eulturo, which was dcveloped and nuitured by managemant. This cultsre, together with company values, was a srong influencc on all aspccts of the business, including the supply chain. Hsieh and Lin recalled that the srong cuitwe rhat existed in the early days of their firsr start-up, Link Exehange, had disappeared as rhe colnpany grcw.

As Lin explaiucd, "At the end of the day, one af the reasons we sold the company was because it was no longer a fun place to work. " They were determined that this would not happen at Zappos. As a result, when Zappos leadership considcred what it needed in order to meet the next year's business objectives, the queslion "How are we gCIing to grow the culture',)" was as important as issues such as "How many people do we need to hire, how many more servers, or how much uore office space do we need? Hsieh described Mhat the culture rxeant to him in 2u08: To mc, the Zappos culture embodies many diffcrent elements, It's about atrways looking for nerv ways to WOW everyone we come in contact with. It's abcut building relationships where we trsat each other like family. It's about teamwork and having fun and not taking ourseives toa seriously. It's about gpowth, borh personal and professional. It's about achieving the impossible with fswer peoplc. It's about opeflness! uking risks, and not being afraid to make mistakes.

But most of all, it's about having faith that if we do the right thing, then in rhe long nrn we will succeed and build something great. o Hiring and training werc particularly important in maintaining and gowing the culture and the company's values. Hsieh said, "We want people who are p,assionate about what Zappos is about--*ervice" I don't care ifthey're passionatc about shoes. "o (Zappos' cultrire and values are discussed in dekil in the Appendix. ) Tns Zlrpos SHopprxc Exprnmxcn From the beginning, Zappos set out to provide an exceptional shapping experience for its customers.

It wanted customsrs! after any interaction with the cr)mpany, to say "'Wow! " To illustrate the priority placed on serving its customers, Hsieh reftrred to Zappos as "a service company that sells shses," which he later amended to inelndc the wide range of other products sold by the company. Hsieh elabcrated on the impartance of customer service: "It's no1 rcally a seffet. , .. Peopie have known. _for a long time that companies that provide good service do realiy well. Yet no one does it. "10 Hsieh saw custom€r service as an investment rather than an expsnse. '20S8 uulture Back," Zappos. com, p. 12. ' Christopher Gergen and Gregg Vanourek, "Zappos Culture Sows Spirit,'" I&e Wrchingtan limes, July 16, 20Sf,, p. ?2. 1o waters. loc. cit. ?philip Dackweiler . Ingen del af nogen bog ma reproduceres eller gengives pa nogen made uden udgiverens forudgaende tilladelse. Brug (ud over kvalificeret og rimelig anvendelse), som er ulovlig eller overtrader servicevilkarene, er forbudt. De personer, der foretager en sadan overFedelse' vil blive retsforfulgt, i det omfang loven tillader det.

Kein Teil eines Buchs darfohne die vorherige Zustimmung des Verlags kopien oder ubertragen werden, ganz gleich, mit welchen Mitteln dies geschieht. Eine andere Verwendung als die gesetzlich oder in den Servicebedingungen t-estgelegte Verwendung ist verboten. Bei Zuwiderhandlung werden gerichtliche Schritte eingeleitet. Zaryos. eam; u*slapinr a Sappb Chain to Delimr WAW! : GS'65 p' S The drive to provide a "wow €xperienuc" infsrmed every aspect of the company. The Zappos website loaded faster than any other retaii website. While most orders were made online, telephone support was essential for maximieing the custromcr experience.

Unlike other popular retail sites, he company's tcll-free phone number was prominently displayed on all its web pages, the average phone call was answered in less than 20 seconds, and call center operators had the authority to resolve virtually any issue' Zappos knew that its primary competition in the shas business was brick-and-rnortar slores, and that in order to be successful" customers needed to bE comfortable buying shoes snline. The company addressed this challenge in a number of rvays, including ftee returnsn providing extensive online product information. maintaining a tall eenter, and free overnight shipping.

Fit" and the Return Policy A key aspect of making customers willing to buy shoes anlhe was dealing with the issue of fit- eustomers needed to feel comfurtable that they would receive products that fit, and that they rould rerurn thsse that did nst. Zappcs quickly realized that this cuuld bc best addresscd by providing frce retums, initially for 6u days, latsr extended to 365 days {although most returns came back within 60 days). Customers could thus pr. uchase several pain of shoes, of different styles and fits, keeping those they wanted while retuming thuse that did not fit. Zappos closely monitored cu$tomcr behavior.

It found that the rnost profitable customcrs were not those that returned the fewest products. Customers who rnade use of the free return policy rended to experiment with different brands and styles-while they had a higher rehtm rate, they also made more net purchases" Overall, retuns were about 35 percent af gross sales. Online Product lnformetisn It was also essential to provide as much information as possible to customers as they made their purchasing decisions, This was done in several ways. Retail websites t)? ically had small photographs of produets, with swatches of the available colors.

The pictures were generally from only a few angles, and often did not show important detsils. Zappos provided substantially better insormation to customers. When new models (or models with new colors) arrived at the Zappos warehouser a photography team took pictures from several angles {by 2008, eight photos were taken of eaeh style and color)" Cuslomers interested in a particular item eouid easily see large picturesn in the desired color, ftou multiple perspeetives' The site also included detaiied descriptians of the shoes, as well as information that would ordinarily be provided by experts at a brick-and-mortar shoe company.

For instance, a person's gait (the way that they ran or walked) was important in Iinding the proper running shoe. The lappos site had a detailed discussicn of gait. and how ctrstomers could detcrminc which rype of shoe was appropriate for ihem. The site also provided customer feedbaek. Customers could write comm€nts on the shcles they purchased, which Zappos did nst edit (except to remove profanity). The rnost rscent customsr comments were displayed for each type of shoe. Zappos. com: Developing a Supply Chain to Eellver WOW! '- ,- ' d*' ,I : .... 1 '' genbogmareproduceresellergengivepogenmadeudenudgiverenSforudgaendeti1iadelse. Brug(ud over kvalificeret og rimelig anvendelse), som er ulovlig elleiovertraeder servicevilkarene, er forbudt De personer' *t::i:t1-,::::,:i*":"*t":St";"t"lgta"nTztlgil. eich' *m*it :. affaiT::l:ilffi',:a;ffiaa; welchen Mitteln dies geschieht. Eine andere verwendung als die Zuwiderhandlung werden gerichtliche Schritte eingeleitet' a .? *, darr ohne die vorherige zustimmuns des verlags kopiert oder ubertrasen werden' "u. n, geseulich oder in den servicebedingungen festgelegte verwendung st verboten' Bei Cose Studie5 in lflternational Marketing Management ChaintoDr,liver IFOW! : The Zappos Call Center (*Customer Loyalty") Mosl customer interactiuns were through the website, which handled about 95 percent of c,rders' The rest of the orders, piu, qrr**tions aborrt ptoducts, rettrns, or other issues, were handled by rhe call center. tn zbgg, ihi, *u, staffed 241? by about 40u people il the Las vegas headquarters. As described in the Appendix on company culture and vaiues, all Las Vcgas cmployecs went through the same C-*"*t new-hire training sourse.

At the end of ths cour$e' regardless of the :"U aT* lhry **r* frireJ ior, they spent at least two week* in the call center working with custouers. Zappos rneasured mosl evcry aspcct of its business. including the call center {or "cuslomer loyalty', in Zappos ,*ttori. ti*At**A how long it took n9m ! h1 time a cuslomer ealled to the ti,ne the call was answeied by a call center op;rator-in 2008 this number was astonishingly low, consistently averaging less than 20 seccnds' lt did nat' however, measure call center ;t;;";;-or, **ti*, or""ffi*i*"y, such as. ow nulny calls they took' Thc objective was to provide the customer with the best possible experience' If that meant having an extensive tonuersation with a custoiler about his interest in running, the call cefter operatsr was encutuaged to have the conversation. If tbe customer was looking for a specific shoe that was not available at Zappos, the call center upsratsr ras trained to look on at least thrce othcr lntemet websites ta find what the customer wanted, and then talk the customer througlr finding websita . {*ppos would lose that ord€r, but the custorner would "We scorc center operators] based luall he product on the likely retum to Zappos in the futur*. Hsieh iommented, "o*p. -tG " We don't cars if +*y,. ltjud* the sale cr how . cfficient' they were.... ro, us, *rery interaction is a branding oppor-tunity'"l one widely cited example of a call center operatol gCIirg above and beyond tustomel expectations took place in "tuty zoo;. A eall center opffator was following uF on shoes that ehould have been returned, ana c-mailed the custorner' The custsrncr replied ftat she :v. as vcry ,**__rO. had boughrthe shoes for her sick mother, who had since passed away' and had not gotten arorllld to retuming the shoes.

The call center opeRtor an'anged for UFS to go to the custoffier's hcuse to pickip the shoes, then sent a {lower arrangem€nt and condolence card to the customsr. Needless to sayr the customer $'as overwhelmed 6y this concern on the part of a cumpany! *nd postcd *o**"nt, about her **p*d*t"" on a biog, wiich were widely cireulated'l? Call center operators were trained to handle mort any situation by themselves' They were given the authority to do so using their best judgment without nesding to escalete the matter to a operator had exceeded ;'-*ffi:Zappos. eomBelievesHappierStaffersLeadtoHaFpycu5,tonufs,,'arrecr. October 2u0? P. 35. itnJ. n Uoitt*v, "Th*se Brands Build Community"'ldoeeA'carn' May l? ' 2008' on whether or not they **ot uUout and beyond for the custUmer' " supcrvisor or manager. For quality, ernployees, not by an"outside ug*"V. i4onitor* listened to ensure that the ,o*to*. , expectatioils, and thaithe custofier's experience had been exeeilent' "onttot purposes' calls were monitored by Zappos ?philip Dackweiler . Ingen del af nogen bog ma reproduceres eller gengives pa nogen made uden udgiverens forudgaende tilladelse. Brug (ud over loralificeret og rimelig anvendelse), som er ulovlig eiler overtrreder servicevilkarene, er forbudt.

De personer, der foretager en sadan overtuedelse, vil blive retsforfulgt, i det omfang loven tillader det. Kein Teil eines Buchs darfohne die vorherige Zustimmung des Verlags kopiert oder ubertragen werden, ganz gleich, mit welchen Mitteln dies geschieht. Eine andere Verwendung als die gesetzlich oder in den Servicebedingungen festgelegte Verwendung ist verboten. Bei Zuwiderhandlung werden gerichtliche Schritte eingeleitet. ?appos. com: Developing a Supply Chain to Deliver wOW. Zsppos. ram: $*elnping a Sd+pt! Cheia to Deliftr WOW! : GS'65 ln late 2008, the eall center received about 5,000 calls daily.

Zappos viewed each ofthese as a rhancs to "wow" a custom€r in a personal way" As Hsieh said, "At that poinl you have the full attention of thc customsr... " That's the timc *her* you havc a huge apparrrurity . ". tu Ehine. "l3 A customer that had irn exceptional cxperience was likely to tell friends about it. With the ease of e-mail communieation, positive or negative tustum€r experiences could be rapidly spread to large number$ of peuple. Zappos wanted to ensure that its word-otmouth testimonials were ovenvheimingly positive. Free, Rapid Delivery The hnal asF*cr of providing exceptional service was rapid delivery at rrs additiuryl :harge.

Zappos alweys fied to beat customrr exp€ctations, under-promising and over-delivering. Utrtimately, this meant opemting the rvarehou$e around the clock, cvery day, with deliveries rnadc ovemighr by UPS. An order reccived in the evening would usualiy be delivered the nexl day, even though the standard delivery terms were for UPS Uround, which had a 4-5 day delivery €xp€ctatiou. Lin elaborated: I gucss in thc early days we didn't really have a choice; we couidn't afford anything else except ground shipping. Then we started understanding that whatever morrey we had left over we wanted tu rcinyest in the growth of the rompany.

We can either spend it on marketing, rying to g€t ncw csstotrnets' or we can spend it on our existing customcrs and lct them drive lhe word of moulh" and let them drive the *come back. " You know these customers are gr:ing to buy shoes at a later date, sc our decision was always to focus on service because we got instart feedback whenever we upgraded somesne. They were wa'wtd by the sxpsrisnce, and thcn they told a bunch of people. And word of mcuth works a lot faster oa the lntsrnet than it does person-to-person because you caR just e-mail out a bunch of your friends and say. trey I just got this amazing experience. ' S0 that was on€ of the reasuns that we wanted t$ keep upgrading shipping. The other rsasun is that we've ahvays thought about our real ccmpetitian as the instant gptification you can get waiking i:rto a brick-and-mortar store, trying on some stuff, and walking out with the sruff you like. Our idea was that over time. Me wer? going to get as elose ts that as po$sible, and that would really bring the $tofq to your homc. During tbe 2006 holiday season, Zappos guaranteed aext*day delivery for all orders, and continued the policy tlgough 20u?.

Howeyer, sinc. e customers expected uexl-day delivery, "they were no longar as wowsd as before, when it was a 'surprise' upgrade," according to l-in' Furthermore, guarantecing next-day delivery set cuslomers up for disappointment on thosc rare occasions when the delivery was late due to unavoidable problems such as weather impacting plane schedules, or if cornmunisations lines were down and Zappos was unable to comnunieate orders to the warehouse. Overall customer satisfaction decreased very slightly in 2007, and the company dccided to uo longer adve? ise overnight delivery.

It provided the same level of r. r"ic*, but unly guaranteed 5-day ground shipping. Zappos fomd that when customers no Ii Mi. hu"l Bush,,,Cusromcr Servicc a Brarding Oppomlniiy," Tirq Busin*s, May l? ,2008, p. 35 ? philip Dackweiler . Ingen del afnogen bog ma reproduceres eller gengives pa nogen made uden udgiverens forudgaende tilladelse. Brug (ud over kvalificeret og rimelig anvendelse), som er ulovlig eller overtreder servicevilkarene, er forbudt. De personer, der foretager en sadan overtrcdeise, vi1 trlive retsforfulgt, i det omfang loven tillader det.

Kein Teil eines Buchs darfohne die vorherige Zustimmung des Verlags kopiert oder ubertragen werden, ganz gleich, mit welchen Mitteln dies geschieht. Eine andere Verwendung als die gesetzlich oder in den Servicebedingungen festgelegte Verwendung ist verboten. Bei Zuwiderhandlung werden gerichtliche Schdtte eingeleitet ,'t 'T'ft "" Case Studies in lnterilalional Marketing Manag€ment Zappos. eom: fr*eloping a Sxpply thein to Delivet I$OW! : GS'65 p. 8 longer expected n€xt-day delivery, they were again $urprised when packages arrived lhe next day, especially when they had placed their orders late at night.

As Zappos continued to increase delivery speed, shipping cost as a percentage ofnet sales (ailer returns) remain€d constatt, even though ths percentage of returnri increased. By 2008, Zappos w*s on€ of the tup three UPS oyemight shipptrs, and worked closely with UPS to increase efliciency and drivc down shipping custs. If Zappcs decided to back off from its desirc to ship all orders for ovemight delivery, for instance, using ground delivcry for all customers that were within a two-day deiivery &om its warehouss, it estimated that savings could be signiftcant.

UPS estimat€d UPS Ground coul*l reach l l percent of Zappos customtrs within one day, 49 prrcent within two days, l8 percent within three days, ? l percent within fow days, and the remaining I pcrccnt would taks five days. Tnr DrvnxrPMElTAiD Evolunoti oF ZAPPoS' Opsnnrto*.. s Zappos began in San Franeisco, in the second floor of a Victorian house, with the founder of Craig's List living downstairs" By 2004, the eompany needed to expand, with particular emphasis on its call centcr.

Hsieh and the senior manag€mcnt believed tha: it was important to have the call cent€r as part of carporate headquarten, rather than outsource sr remotely lccate this function-a{ter all, the eompany's primary focus was orr providing the very best custorner experience, and rhe call center was central to achieving this objective" The Bay Area was cxpensivc, but it alss did not have uc right environm€nt, nor access to suitablc employees to stsffthe type of call center that they believed was essential to the company's success. They decided to move Zappos to Henderson, Nevadq un the out$kifrs of Las Vegas.

Las Vegas u,as a service-oriented city that operated on a 24*7 schedule, was already home to many call centers, and had exbemeiy good Internet connectivity. Of thc 90 employees in San Francisco, 70 moved to Las Vegas. Attracting Brands In the early years of the company. it was difficult to get brands to sign up tbr cnline distriburion. Shoc companies had made huge investments in their brand cquiry. In 1999, Zappos wss an unknown start-up, and established rctailers viewed the Intemet as, in Mossler's wordso "kind of a {iea marker.... They saw the lnternet as a place where everghing would be discounte4 and their brand would be ruined. In addition, the existing retailers prcssured the brands to rssist oniine sales, as they did not welcome the new cornpetition. An additional complication was that brands were more successful when grouped-athtretic shoe brands" for instanee, fared better when grr:uped with other athletic shoes. If a retailer offered only one athletie shoc brand, there would not bc enough selection to attract customur$. Thus, it was difficuit to collvince companies to be the first brand of a category to be carried by Zappcs. Once the first brand signed oR, however, subsequent brands were easier ta attract. n its first year ofoperarion, the eompany signed up 60 to 7u brands. Zappos focused its attention on signing brands that customers searched fior or asked for when taiking to call center operators. The cornpany reviewed logs of customer searches fur brands that ? Philip Dackweiler . Ingen del af nogen bog ma reproduceres eller gengir,'es pa nogen made uden udgiverens forudgaende tilladelse. Brug (ud over kvalificeret og rimelig anvendelse), som er ulovlig eller overtrader servicevilkarene, er forbudt. De personer, der forerager en sadan overtredelse, vi1 blive retsforfulgt, i det omfang loven tillader det.

Kein Teil eines Buchs darfohne die vorherige Zustimmung des Verlags kopiert oder ubertragen werden, ganz gieich, mit welchen Mitteln dies geschieht. Eine andere Verwendung als die gesetzlich oder in den Servicebedingungen festgelegte Verwendung ist verboten. Bei Zuwiderhandlung werden gerichtliche Schritte eingeleitet. Zappos. (om: neveloping a Supply Chain to Beliver WOW! Zappos,com: O*elepinp a Supply Chain to DeliveT I'OW! : GS-65 p. 9 w€re nut on its site, and its buyers investigated those brands and evaluated whether they would be valuable additions to the Zappos offering.

As the company grrw and became well knuwn within the industry, brands bcgan to contact Zappos about being $old tksugh the sitc. As Steve Hill, the company's vice president of merchandising in 2008, said, "flThe buyerl will get in touch with the brand, talk to them, atrd look at the product. if there's a compelling reason ro have the product, then we'li go ahead and open the brand. ln a lot of cases. it would be duplication of sornethiug we already have, so we may not go dswn that road. " High-end brands, initially r€luctan1 to parfner with online rclaiiers such as Zappos, eventually cam€ on board for several reasrlns.

First, as con$um€rs became comfortable buying ouline, this became an important disribution channel. Second, they began to realiae that if customers could not purchasc authentic high-end brands, it made it casier for counterfeiters--customers searching for their brands on the Internet would end up on sites that sold fakes. A third incentive for high-end brands arose when Zappos began creating '"vertical" sites within Zappos. com. Thc hrst such site, "Couture," was crsated in 2003, and fearured high-end fashion products {initially shoes, later expanding to clothing and accessories).

By 2008, Zappos had added verticals for running, outdoor activities {such as hiking), and a "RideShop" featuring products for skiing, skanboarding, surfiRg, and off-road bicyciing. Brands were eager to paftiuipate in vertical sites, since thsse visiting the sites rvould be passionate consumsrs-the types of cuslorners that wanted high-cnd brands, and that those brands wantcd most to au,ract. As cuslomers wers wou/ed by the compaily's high level of service, they bcgan asking Zappos to carry products beyond *hoes. Zappos added additional products based on the passion displayed by cusfomers ar emplcyecs.

Lin explained: A iot of companics looh at lproductJ categories from a market point of view, and chase after big markets-they think f, market is strategic and want to go into that market. We have tcnded to lssk at thing* as: 'if we want to get into this product category, do we have passionatc people, whether it's a customer, or an cmployce, or s parmer, that would love for us to be in that product category? ' lt's actually worked out yery well in those situations. So, if customers want us to get into h*ndbags ur ac. cessories because we sell shoes, we go into that eategory.

Zappcs began selling electronic entertainment producti begause some of its emplayees were passionate gamerst and wanted to sell gaming equipment. Lin observed, "We found that people whs are passionate about a product category tend to run it much better and much more efficiently than pcople who just think, 'this is a big markeq I want to get into thar business. "' By late 2008, some of'the non*shoe products that Zappos soid included: handbags, luggage, clothing, eyewear, clectronics (eameras, csmputers, video games, phones, and CPS devices), watchcs, houseware, and jervelry.

Its ouldoor verti*al site also included items such as tent$, stoves, water {iltcrs, lanterns, and other items important for outdgor eilhusiasts*these customers were not just interested in hiking boots, they were passionate about the outdoors, and wanted to be able to get a wide range of products. Other vertical sites included a range af irerns important to customers interested in those sites areas of foeus. ?;a;;il -t" e*i'sd' s'11' 1"e919 ,tl,t-. , - - t y* .. ,t ,. . Case Studier in Intetnational Marketing Mtsnagement Evolution of the Operational Mode . ,. - . ^*#' H"#H::ff :ll. ::lT[T'-T:}. 1"ili ji:|,jiJiff xTH#ll::$lJ'l-*.... a*'-:1ff ffi? be forwarded to the shoe companles' or tulfillment costs' ftom tle zappos'a*i*irar*o g- "i-"auld shoes a-"fJ""t incur. inventory which would fulfill the ;;;. ' :t*s,. zappo's pricc' over ttme' This *' {ff 3fJ'JfjafJ-X;ip"'approach liil::. y';llTi#l; ilTJ;,llJ1l'lii:si,Tfg" websitewasonlyaboutg5perccnt. accuratc.. rr,*. ompanyrcceivcdthisinformationfromtts vendorsinrnany*";,:*,u*'":r*::;lil-l1i;i**ffig:f"5;1.? 'i#:-iao'o'", ror custom;;' since thev courd prace l*iXi;f:r:S"X*:t:*'1"? *Jua;;a;. tion or long delivery ttmes' orders for products ,fr-i*J-aiin stock, leading ls cancellation Zappos charsed ,u**oa*i*iir* changed, *iii uv 2001, all z"ppir'rrrip*en$ were notn its own invenmry' The seccnd problem with the drop-ship a orCer withir: a ferv davs' but if it reuil pnce. ,"ao;a-i;;;;4"1f-tH"llholesalc this msdsl by ttt" foeus on customer satisfaction' evolution was primarily driven "ompuoys approach was that Zappos did not know when a customer *ftip order had been shippa"fi-l*ia-, a targe *oJi'fro* n *. :* *-p-na,aaa,;u reeeived a;"h;oy, *a Zffi *oufa not know that delayed.

The custo*r ,-i*l*i*** called to inquire about the order' in November ? 000 Zappos would ln response to tirese a;u'ua , o*ndo. tliau*iart*Ja physical store before thev of the requiremenrs a-J;;;ii *u* in'nJi*it or retailing' and manufacturers qt6ta;;* might be there was a problcm until ? ri*gin6 I nv entarY I n'H o ase began to stock its own inventory' one +-t: lntTer sign up to be oniineltppu*"i'li* -*tra-aigl''rt1tg-t: **t tbis requiremenq zappos
. €re unsure uuo*r rti. "5a*a;a "f carifornia irat *as going out cf busirress but c*nied the had purchasea u *rroa*lain witto**, aPProPriate brands' neoftheaftractionsofWillowswlt}atitwasmuchlersexinpveenasmiveftihtapnurtchheaSseadnaFnranbacntsdocnoed *o *#a. -. "*p-"V dec;ded i" . -rw it- own ii into a wareho"se aud Bay Area, *ii**, fro* a*'lr'A*-i'L**' ano-tr''rnea idealiy deparunent *or* u-ar-rfra a;;t*loo aii-t of Sacrarnento' was not uo*ever, Wiltowr, distribution "*rrr*r, distribution center. There was 1o rnajor au? fft located to be an lntemet were made l, upiaaLa ra* *ar*nouse ""nft nearby, and shipments was a manual operation' Whilebringingsul. lleinventoryin-house,Zapposeontinuedtousct]redrop. hipapproachwith manY cf its vendon' center, which had oniv 30,000 $quare reet' ups fffifi"Jfffi #*rtr1fffr"fffitfiftou *J'fotf'tmtnt' Under this program' Zappos approaclred rfr" *oap*y re manage i - i;;;;,Y ,u Th* **puny,s original rvebsitc was shsesile'com' but this was latcr changed to Zappos'com- zuppoi cu$tomer's order ?ver lsralificeret og rimetig anveiolrse), e? forfulgt, i det omfang rov. n iiiiJo'a"r. ra"in velchen Mittein dies geschieht. Eine andere verw€no"r, "i, ,"*tlon*Otung werden gerichtliche Schritte eingeleitet' developed irs own systems nd procedures"-f;;*a on a highly SKU-intensive io-help^bring *aft**" eoding himsclf' r. ' n,i. t . ou. r o*. die ist verboten' Bei vorherige- zustimmung des verlags "ir,. , a* g"r. oran oder in den s"ruicereorngungen festgelegte Verwendung in ordel ro keep up *irrr a* Jscalating Choin to Ueliver lfOW! : wouldcontinuet0o#ntheinventory,butitwouidbestoredinaUFpsafarwci'liTtyhneeparoriptsoshaulboifnfered *ouoaLiur-a uv a thirf Louisvine. Kenrucky. o;a;afirffint a;a;;ui t"vs-thirds"of customers could reccivc advantages, the mogt U**g 'iqilt-ry from willows' Due ru a lack or. coqpaly needed apltai,-iu* stati; in;entsry shelving and hand-held bar inexpensively u, po*riilt*. - A*-u r*rult, tit-V^"i-a man, gemeilt that was later uplsaded ta the inventory managemenr *yr,**J^*rorthermore, systems in-house' As a resultu the company prcblems similar ,o ir. -*;" they develop*J-trr"it business that up the new warehsuse' Hsieh required virtually perfect inventory rnoved ? Kentuchy at fr"- *"rtrt*l ao;og muc, of tire ". "*u. y, place in Fromthecompany,searliestdays,{appo. shaddevelopeditsownsoftwprarceti,coepdwran$izsetdilltoinmeetits in ouO*''in *ioi-*ite tosts'. This eeds, using open source qrgerams. upgrading oficth h*d*I^:. Tl scftware 2008. The company's rapid growth ,*q,,o. i"*nntinuJ volume and to dEliver a supcrior custornsr experience' At ccnsidering the the end of each *louigoa*a;d;itiqu1;;'1u make plans to provide double year,s holiday settingseason, the lr group {always smatl, company revenue. a;;uig just-finished holiduy **a*o io' the foilowing vear's holiday seasan' They rhe capacity of the -*;;;;i;ysterns could ue thoroughly testcd beforc the implemented rhese plans by mid-year, new caPacitY
yas requred' stock locations were randomly assigned.

A siven stock bin might hold up In its new warehouse, same brand' The random not be'the sama sryfe, o' *u*'ith* to l0 pairs oi rt u**,iut;*,**;,"-ld ali shoes &om a given brand stoekins approach ira';". ;;;", "r "0"a. ae-r:*hipi-r,c*b-l-:enplisgw,hen they started shipping' and sounded ril. - g*a organrzation,-it ar*"t*d arrived' it was $gether -o;;;;uilh- U'iogluo6o* *toeking' when a shipmurt crearing missing separated inra pairs oi uho**, which were plaed in the nearcst available bins' The stock worker *t'1ri:n forudgaende tilladelse t:rus uu "Ogiverens overtredelse' vi1 blive . rot"tua'' ot personer' der foretager en sadan " som er ulovlig eller? "*ad", servicevilkarene, kopi'ert Jer ubertragen werden' ganz gleich' mit several deliveries within two days using ups crouncjula than shipping tolls' which would be more woutd be manaBed *ing *'gl"utef lnventory and fulflllment u* withaut zappos having ra make a major than the *r";;;;ih$- u**a u, ruiii"** its inventory to efficient pcrtbrming - au"ii*O analysis' Zappos moved capital investment. t" aaoi, "n* the UPS facilitY. within 6 to 8 weeks, however, it was clsar that this approach would nOt wOIk.

The Zappos *l r iilrgrl-lra1*e could handle' since each :v*l:T style of shoe could business invoived *";;;;-lieepine shoe stylcisizc/color combination *u* * *"p*a* sgu' thur. an individual require many SKUs' Zappos had about ? 0'u00 to 80'u00 SKUs' "i'ut "*-' freueloping the Zeppos Distrtbufion Center in Kent*clE sJruicc to--its-customcrs' it would need to Zappos decided tt at ln n J. , *o provide *-r. pionur of its business' Thev c*rieo-da;; irre irieh-sfu necds devciop its own o,rrniuiia"rntai less than 3u minutes frcm the l-iPs found an irexpensive building in shepherds"ur",a""i*r. ' hub in Louisville. code scanners, *fri. h'r]ad infannation was beyond the servers-the cost of ;;;i;, communication between scanners and servers comPanY' s budget constraints' TheZapposteamdidnothavepreviouscxperienceindevelopingcomthpaltchxaindvasdndrteosrsyed tir*y Iia-oot find othcr companiJs u:t u 1o**' *o*t to build i? warehouse as ?som er ulovlig sewicevilkareng "? iAro'' over kvalificeret og rimerig anvendelse), "tter-o,r"rtaoe, nt pt"ottt'' der foretager en sadan overtredelse' vi1 blive Teil eines Buchs darf ohne die vorherige zustimmung welchen Mitteln dies geschieht.

Eine andere verw". rorng a. ai" gesetzlich oder in den servicebedingungen retsforfulgt, i det omfang toven tillader det. Kein Zuwiderhandlung werden gerichtliche Schritte eingeleitet Case 5tudier in lnlernational Marketing Management when p}acing the box into festgelegte verwendung scannsd the shoe box and loca-wtiolrn*n telling the system the purt *orJJiA, was easy to find rhs appropriarc bax 1bin, ordered' it a stocrt ficier went to get a box that had been lacation of that in rh. bT:;;; i;;"1d;- with different stylcs of shoes frcm different ***iu"r**rs-. the *otm aiC not need to distinguish shoes stocked next to the Size gH shoes of the same uodei sitting next to it- Asitsbueines*grelJf'Zappouincrea*editswarehcusingcapacity. Thcinidal265'0uUsquarefofotot ;";p1? v opened a new 832'0u0 square facility was frlied ," ;ail;;F6Ftth" operations also became more facility, of which ha1; was ,rtio*O for fulure gror*'th-'Wirehouse sophisticated. The initiaiwarehouse consisted;f static shelving and simple co$Yeyors' The new facility had some static sieiuing, but with uutoai*O *on'*uyo'i' It also had eutomated car*usels uscd in dry s pa nogen made_ uden udgiverens forudgaende tiliadelse' Brug (ud needed iioo,, *u*tt liie syrtems commonly rhar spun unril they;;;a"i1" cleaners--except that each of the 13t carousel ioops in_place by. 2008 contained 32 units floor and were stackfi-iou, stories high. In zobt, zappos icaea mute automatiorl to its warehouse operations by installing a robotic rystem'in tutti*t' totott picked up shelves that contained rhe items to bs picked (or cmpty plac*s fsr irems to be stocked)' and brought the shelves 1o the workers.

This $eatly increasea rvorker effrciency-in the f'st year it was msre than twice as efhcient as ei*ra me ltatic o, ca'o''s*i methods' it was also more scaiable' since new shelves anc rouots courJ u. easily added when needed. (see Erhibit 2 for photographs of thc ZaPPos distribution centcr') ilHf;f-'{"#f*ra-"-ti,t sending orders to irs vendors for drop-shippins, arthough the des Verlags kopiert oier ubertragen located berrveen the size I own inventory increased as it grew' The source of percentage of snpme. ots from the rhe delivery, rvhether frorn the Zappos warehouse or ry9. $e that transparcnt ta the uustomef. However, cvaluation of customcr satisl'actron showcd customersservedbytheZapposwarehousewerehappierthanthosewhoseordcrsweredrop. shipped' about ? 5 pcrcenr of orders were bcing shipped from ue zappos warehouse' The By March2003, by company decided tt *iii not prcvide *utto**t o*ii* that lived up to its own standards "o*! uny'* drop-shipp"d v;nd31 was "arrC evaluated the situation' and decided cantinuing the drop-ship business- ffr" . o*! *y leadershiJp'seruice that it shCIuld tlefine itself not as a shoe *o*p*y' but as a comRanl. . hat just shoes. ,' Hsieh explained,"We decided ttui*i'*unted to stand for somcthing more than rnaking money sellurg shces. " Thc,service results at that time were not what Hsieh and the other leaders wanted thern to be, but thc revised focus helped cUncentate atlention on what the uompany needed to do in order to be recognized for superior service' Zapposimrnediate}ystoFpcd-$ingdrop. shipments,cuttinglf? 5po"*nt0fitsbusincssinthitEems short tcrm. Zappos Uoiit'i. i* busiass U-*fro". liirr*r. urid its inventory to include those that had previously bcen drop-shipped'

Thc dccision to bring all inventory in-house allowed Zappos to tahe those systems and procedures i*prou. A*? ts icquirea to incres$e inventory accufircy to nearly 100 percent' When the last item of a particular style/color/si1* was sold, thai item no iooget appeared on the website' Thus, any it*m tf*at"a cu*toaer selecte4 onau* *as i" stock-the only exception beirg when there was just on* t*n lo inventary, una wo *urio*em had that item in their shopping ca$s at lhe werden' ganz gleich' mit ist verboten' Bei p. li happ^ens,tn sell per ?emfortulgt, i det omfang lov. ririlo. r'*'o"i. velchen Mitteln dies geschieht.

Eine andere verw.. o"", Verwendung ist verboten' Bei Zappcs'eom: Developing a Supply Chain to DetiverWOW! : 7V r"' e,;. rr-;lu,i. tr," oie. rorte. ig" "in. , irar. lo. ou. n oo", ,r o. r ,. *. "o"oina*gtn festgelegte Zapuus showed inventuy warehouse had l,4t? i*oj;;]a. oii 15 uAruur* for shiPment' SurrlY Cgatni AtL'ulAuE]IElir Buying -,vr--,'t;,i,z'lz uPCs, and 2'851'610 tstal products that Chainn Ael/l'. er WOWI: sametime. The|rf$tOnetocheckoutwouldreceiveth€it€m. AswithallZappotshaisctclvalstlce'$th'e ;;-;;;; ;-rvice dro*re ,h* *o*p*y's operations-in oroviding ou$randing iequircment for cxcepuonal inventory accuracy, ractice followed by shoe manufactursrs The *aditionat ; ;;1" shoA. R-b-;;;-;;da ph"" orders for the upcoming selling w*u1d be introduced built to these orders' with a season for deiivery throughout the season' 11. " *u"ui'*turers poaular't* lf a retailer ordered relatively smali surptus uoaifuUf* in case ttre st'tes becllrre -hielr. ly si generally by selling at tou many unitt, it *oold hurr* excess inventCIry that had to b* ditpos*d a stsep discoirnr. However, if a style U**u*J*-ftug* hit, ths manufaclurcr would increase deliveries, as it could not rcstafi prcduetiori, and the retailer would lose potential sales' This chedule' and retailer$ would place orders for specific Eaeh brand had a monthly *vailabilit"y*on'tt Frutdng optimal purchasing decisions ,nas based numbers of unirs * u- a. iit. t*J *urt These on sening the right dciivery required erperience on the pun nf t-ni*ribtuyeers, and a gcod sense ol the m"arker' decisisns shoes over the lnternet was $Ew' and the was parricururrr r**Ti'apa;'afi"t- *ulauiug *uil oio*t sales. Mossler's experience in the indu*try was most relevant model "It's about your feel' You g*t a scnsc for thc particularly critical d;;g this tiric' U* **pluin*4, brands that werc ,*aat:;lo;;ilili. *i how rhev were. doing. You had a sense how big a potentiel a new"brand Auld have"" You just made your bets"' for :ffi::l"an"' #:aaa:'Jl3lal"ol'iq "u o'*' i*A**e a"' v*t"gt k";;;;;;er ube(ragen werden'-ganz gleich' mit with an objective of lU0 pcrc$nt accuracy. sutisties on its home paFe'--9-T::**T125' 20u8' for instance' the By200E,themgrchandisingdepartmenthadaboutl00empioyees,abouthalfofwhomwcrehad fiir* *. r* ,h" pF"ty points of c. ontact for vsndofs' Zappos buyers and assistanr;o;: . A* urot*ution thar the Zappos buyers saw' an Extranet. which vendors cOuld use ta see'the from wa$ to develop,l-* cheduls*-botit trt" iu"i5*i of uoits and delivery tirning' pricing, uJ *". dn*. This zappos to benefit such as on-hand inventory, sales, _enabled of buyers (both Zappo* ;t;"d;t personncl) *valuating the inventory' lf a having rlousands tu" u"nOot trad additlonal stsch s'tre might cail vcndor saw that pr""i,i;a;;do'**ff-aC on the ather hand' if an zuppo* putg** more inventory. " rhe appropriat* uoy*, suggest rhur item was selling slowly at zappos' but the tendor needed more produc't for other distribution channels,s,{remight$uggestthatZapposreducefuturescheduleddeliveries. ;ffi;,ll'iryw. arippr. qa-* 'lovember 25' 2008)' the manufacturer of plasric shoes aud. sandsls' For a du:scription of the an lndustry's Supply Chain Msdcl for "oa An exccpticn to tiris practi'"c *u, Cro"r, Crocs supply chain, see rrt"'ir*r*aGSB case' "Ct*;;'R-;;l"tionizing oL*p"rltit"' a'ovantage"' GSB No' GS-57' 16 :1::,1Y1es not bc able to ?servicevilkarens;i:i::::i:::;T::::. tilJf:? :l1iliH":fi:aS]:";JLi:ia, over kvarincerer og rimelig anvenderse), som er urovrig ett"r-o*rtAoer kopiert oder ubertragen werden' ganz gleich' ,m"t,t *? ru! |ffi:::affiH1tr". 'i darr ohne die vorherige Zusrimmung des verlags is1 verboten' Bei '! a ::'r#$;:::::1""t welchen Mitteln dies geschieht. Eine andere verwendung als die Zuwiderhandlung werden gerichtiiche Schdtte eingeleitet i* Case 5tudies in lnlernational Marketing Management *Powered by Z*pposo: Operating a Supply #eb - The Zappos supply chain was nUt a$ simple as the linear pfocess of placing orders with its suppliers, stocking roo*ia'y, u"d shippingorders to customers' For instance' in 200? ' Zappos purchased 6pnr, a ai*. ount onfine shoe i*tuit"t {described in rnore detail below)' When 6pm was integrated inm zappos,--G 6p*. o* ye$itl sold producl that- was in the Shepherdsville warehouse, exactly * t}"'t*** *ay as the zuppot. *om-website-lhe ptUdufts were handled in exactly the sarne *uy, on tt *. Opacom wcbsite mightbe sitting in an inventory bin ":116ffinn"i thaugh each website displayed different a" Zffir. "o* website, even ThecapabilitythatZappcscreatedlosellonlinetoindividuaicustomerswasalrovaluabletoirs l,endorsu direct sales lnitiatives. Most rnanufacturers of retail prcducts had distribution systems that were built arouna'tup*""rt of relatively large numbers of goods to retail stores' or tc distribution centers operated by large ,tot . *Jiou' For instance' a manufacturer selling $hoes to Nordstrom,xoulddeliverlargebulkorderstoaNOrdstromdistributioncenter'Nordstromwould then supply a relatively smill numbe, of. rrA ftu* tftit distributian center' The transfer of individual pairs of shoa to custcmers would oucur at the Nordstrom retail store- As the Internet developed as a credible, pcpular, '*'ay :f selling to the public' some manufacturers wantcd to te able to scll dirccily to *usto**n' To do this' they needed to develop websites to sell producls, and a distribution n"iwolk to deliver products directly to customers-in srnall shipment$ to large uumbers of. estinations' For companies that had previously sent large shipmenrs to relativeii-f** J"stloa6ons. , tlis was a difficult chailenge-tr: say nothing of the new requirem*n, ,o ir**ss lots . o,f gt{. "t*. for single units of the products' handle billing to individual ronsuners" and deal with individual retuins' Thc companics wouid have lo develop rexr ro a product products. "r the technology to desigrr ald. run a retail website' a call center t0 deal with cu'torner questions and problems, and a disribution system optimized for delivery to retail cust0me$. These were all areas in which Zappos excciled. n order to help manufasturers sell directly to consumerst Zappos developed a prog? rn called "Powered by zappos''" under th. is,plotrutl]' Zappos developed uoJ r-ifr* **U*li* fcr ttese-compa*ies, An *t* call center' and distributed directly to custcrners] i;;;;- ;h; ;""uf****, was the hvpothetical "Smilh Shoe Companv'"' Custcmers would go ;1il company website, smithshoe'com' which would display all the availablc shoes. rrre s*itb srru* weuiite included a prorninent "Powered by zappos" logo- The customer orderEd a shoe, and the orde. uas sent to tit* Zappos disu'ibution center' where it was handled jusr like any other order. ustomers that hsd a qlestion or problem called the nunber on ths Suith Shoe website, which was snswered by an operatoT at thc Zappos eall center' Smith Shoe paid Zappos h;;;1;p and run the. website,'end to handle its customers at the call centcr' Zappas purchased i-at". y tn"r was sold on *re bmitl Shoe'i/ebsite' as it did for ilerns sold on theZapposwebsite-infact,t}reinventgr-Ywa$thesame'evgnthoughitwasoffered0ntwU wcbsires. In all eases,;;;lli--; of whicu website a customer ussd to place an ordcr' Zappos bought producrs e";a;pplier at whslesalc prices, and sold to the customer at retail prices' severai areas of **i*o. , engiveSpanogenmadeudenudgiverenSforudgaendeti1ladeise'Brug(ud ",. n, gesetzlich oder in den servicebedingungen festgelegte verwendung ? riiipDackweiler. pcu"r*",,J6frll"lie":. :l_":,? :-mm. f f:"? Tlla'ia'Jl"*::lH:';"'a':'affi;a;w'evrdieibn'lsiavnezgleich'mit og,i-,rie un,",'oilse), som er ulovt'? zer kvalincerer "t":,::'ff$'jffXi:Ili#a"; a:l':H;:ffi"a. oo'*ut"n il$o"o"' :'nT'ff *i*;*'a:Jaf l**aa'atrffi ::a::#ffi ti":"llmffim:"ffi J? ilaff'$ffi ;;;;ilt *'i:n e"'i'hditu stuu' "i {:hain to [lclivlr WOW! :

Linobservedoneoftlrebenefitsofhavingasingieinventoryservingmultipler:nlinestores: oneintcrcstingaspsttofolrbusincssfromasupplychainperspecttoivheaisv. ethltastionwn rhe brick-and-morrar world, *u*ry u*, yoo op*n *:*t ::** disptayrpu. *,i'*ownshelfspace'andiisowninventoryspacte0'Tahccewssatyhewesa'vme opened up these stores online, vou *rt*u* aiir*t*ot windows ' inventsry;youcanjustcreate"n"l*tt''Ourmainsiteh*sacccstsotoruthnenisnagi'nfoer . , *;ai,;;lia*a ,*r*"iiao ;f *t verticals related inventory, ycu * up""in"t Utuod oI Powered by Zappos example. Or, I can show Yo:Uh or on the letting other people sell ; p*d*:lt:,T-t OYerstock ite, or through ss-uvet time it will be much' much 6pm site. It's accessing Fq 1u*t,lnventory' rnore effreignr tt'an in thle brict-and-mortar world' the sarne inventory could be accessed through Thus, Zappos created a supply Y11'-i" i. lich sold shies through the Pawered bv many websit*s qg*t iuitli' in 2008, ,*uua;;;;;i-t ZapPos Program' Scheduling Praduct DeliverY ffi Zai:por'com: Developing a 5upply Chain to Detiver WOWI facing Zappos was scheduling deliveries from its suppliers tu the one of the challenges piu*. J orderJwith more than 1'4s0 different brands' distribution ffinter.

In 200g, the company when prA-t- arriuea at 15" Olst'iluticn help schedule fir. ;;;-; *gerc thougtr the warehouse, op:rated i"t'nio"a-aitiplc dciivea' dates' Zappos gavc suppliers orders typically center' and to try to smooth the recetvtng schedule. Zappos received products 1u*o eompany's pnmary I *ar. folshrpping products-to customers*the around the clock, **aao a customer ordcr' objective was getringl;;;;*o o" * t***. ttao ia tlps *itttin four haurs of frornja vendors led ro tralTic management diffrcultiEs for the The large nurnber of shipmenrs *u* that it had ji*lt*C visibility into the wxehouse. ne of the challengr* Z*ppu*"fAJ supply chains, and therp *t;;i;A d-gree ofuncerrainty day that on in practice' in which traffrc at the rtre*shipment might aa*ay! i**-io and other days in which relatively few warehouse was backed up waiting to ue untcu*ec, shiPmcnts arrived' within the warehcuse operation'. but was an issue that was difficult for This created ineffrcie'anncies -"iwe **rl ,o wo* not;ust our custoflers and our ernployees' manufachrrers' a shipmenr wsuld uao* u, rhe warehour*-*fui" from thaf availability' Ausust l, and Z*ppos mighr speci$ * q,runtlty ,o-LtLtiu*oa 'ugtt*t'' As a result' there were days Zappos to address. ot. ***a: but also our pa$ners. we give them a a"t;irt"lO tirem lro specihc rcquiremcntsl'-" as to the actsal a*manufactursr might state availability p*'tJ *ra- *inaa*, ano't ask thern ta change that' and tlealing witb Exctss InventorY stores had to clear space to prepere ml th: new products that arrived each Brick-and-mortaf **"rA rtt"Ji" clear sheif. space used for sandals by August selling seassn. F";;;;;; a store sell during the fall and or Septcmber, in order to make *p*". uuu:il;;i" io, iloo*, which would dclivcry windows' to rctsforfurgt, i det omfang roven tiliader det. Kein Zuwiderhandlug werden geri:hlliche lchlitte eringeleitel in den s"-i. "u"oi. ,gu"gen festgelegte verwendung . uS , t. Case Studies in lniernational Marketing Managernent ri rAuat' ot p""on"'' der foremger en sadan overtradelse' vil blive a0.. servicevilkareng ganz gleich' mtt )ver kvalificeret og rimelig an rerrdei. e;, som er uiovlig ett"iorr. rt vortrerige zustimmung des Verlags kopiert oder ubettragen werden' Te' eines Buchs darf ohne oie werchen Mitrc1n dies geschieht. Eine andere verw.. ro*g ur;or" gesetzlich oder ist verboten' Bei inter season. To do that, the store would have t0 drop prices starting in July until the end-of- $eason inventory was dePleted' ZapposwasllOtconsrainedbytheneedtoelearspacetomakeloolforeachseason'sincomrinedgsced lt du;;i neee to t*eio r. yrog io g. 1 rid ol stock until custumers new i. nventory. it found ,t . *,ua*i* io"*grt, sandals well into the fall' when demand" For instance, ", ;;i; ;u* prices*but thc reductions were based na;; th- o**a a make rosm for the next sesson's custornefs slowsd rheir pr,rrchaser, Zappos products' Coaversely' on customer teha. rior, if a model sold slowly, the price could be loi*J *-ff before the end-of-seasona-adgeacii4sion to . *io*.. demand' A* ffiff explained' "]Yhen we make decisions were based'oo interested in down, it's beeause customers are *ffini us thal they're no longer mark something 'Hey' now I'm rcady this product at tfrar prile, * **ln**'" rhe price a - p"i"i"i*ftich rhey say, to buy it again'"' early days, decisions tg reduce priee in order to clea' slow-moving stock werc ruade In Zappos, r,"rt r. i oo Juyt, and no sales had been nade' they would manuaily. f a shoe ;d;;;1" lower the price. As the company grew,-this. o;;r; was automated. The Uorupany assigned sell- percentages ; a;-;ir;i. d;. t instance, ir might expect a given style rhrough . f* to sell-thraugh the at 25 percent p*, *on*. its target sell-through' tltc an initial p*tinO. *o*ft as tie nrst 60 days' it wauid maintain of ,ri**. ano that, if the;a;-* did not,achieve price regardless *,if lt aehieved-thc sell-through plan' If salcs back up' principlc of *r* cs*pun; the right the primary bcus wes oo tl'* uu'ittg--rdoecjsion' Zaopos wanted to have [-*-rfv. t would have less slow*moving inventory to deal with' However, it was inevitabie that there be some excess inventory' and the cUmpany adoptcd a numberofapp,ou*hestoaddresstheissue,ltwouldonlydiscounttoalimiteddegwraesenoonttehneou€*l *ensite]-as a iull-seruie* . ite,'noitt''Aa tftippi"g and retums' there sysrem would aurom",af'a*t O";^*. tfy fi"- picked up ro rhe p"*;;a t;ey exceeded rte ptan, the price might be adjusted Zapposdidngtwantitssucce$stab*basedondiscountiRg'how€Yer,Thebasictopdeisraptaisnigng of *** ," J*fir* tn* oUrrt sirvi. cl. T*' with respccl excess inventory, it made rhese decisions produut', in the righi q,ranriti*r, at the right ti#. the extent"tlat Zappos. com deep'discounts on the site would dilute the margin to $uppon deep diseounts. Furthermor-er. ot new shoes' and Zappos brand and inhi;ir salcs ofnew *oorr*. initun"e, ifa runner needed model' it would be difficult to se'l the tew uoa d;-;;" mr:dei if the old one was heavily discounted' rhe site had both thit';;;;a*i Tosupplem*nttheautomateddiscountingpfogralnforsellingexccssinventory,Zapposopinen2e0dt)4' t" a*? o*p*y's Keituckv warehouse, opened that sold surplus or end-of- everal outlet storss. The first, adjacent ln in 2006, tu;-*ui r:pened stand-alane-otttlet storA in four other loeations' Beginning 200? , Zappos bought the oniine ,t o*. rumlun, op*, a discorinter as very sea$on shoes to * ilff*r*n, wcre toking for the bcst price' thus important. *d *;;;;;;;rv lovur'. *r'lt" "toiiPt",T,-'.. s zappos now had an onlhe cuitomer base"' Zappos custum$rs typically viewed service iir* best deals. wirt tu" 6pm purchase, rended to shop *"*a-ioi products to the 6pm site' where they outlgt for siow-moving inventory-it could *u* ttto* couldbediscountedasmuchasnecessarywithoutdamagingtheZapposbrand. pffcustomers the* ?pa nogen made uden udgiverens forudgaende tr : : ': :::-f 'l ;: o" p""on"" der foretager en sadan overtraedelse' vi1 blive servicevilkarene' rilot-orot' ganz gleich' mit rver kvalirrceret og rimerig un r"rio"tr. y, som er ulovlig e'"r? "naoo vortrerige zustimmung des Vertags kopiert oaer ubertra'en werden', isr verboten' Bei :e? forfulgt, i det omfang iov* iittua.. 'a. t. tnotneedtoreh. lfnit,butyoumustreadit' discreteauuioi**. roJt. *6, ui*fts ate A*not'd by iow (four foot) {ere thaJ" on the othgr, The company's senior and. Hili, are locatsd in the rniddle of such inciuding Hsieh, Li;, M;;;l*. short, the working environrnent reinforces a part o'f a in each aisle give a warm welcome-sornetimes by As a visitor tou. s the offiees, the employees ln one case' one a" op**t* ** ioiita*ft, U"t a* part of a tiam' a*d teams ar€ "at pf*vt a i*pntiunt rslc, and eveivone conlributes $ow the culture ***ry Hsieh sent an e-*,ail-to all employeel t**f**"t were then distilled down to l0 values: ,, 1. DeliverWOW Through Service ?. Embrace and Drive Change 3. Crcate Fun and a Little Weirdness who reql,ests ttrern, For information. contact tours@zapPos. cam. -Io see a zuppo, provides torrrs t0 anyone ideo of the Zuppo, *uuiloment, ;nctuding inre'ul"*s the bottom of

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