Developing Supply Chain to Deliver Wow

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Zappos.com:
Developing Supply Chain to Deliver WOW

Strategic Management of Operations
Prof. Saibal Ray

By: Jaycie Zhang
Xinqi Wang
Arturo Cabezudo
Maria Campos
Juan Carlos Neira
Executive Summary
Zappos.com is a privately held online retailer with an extensive product category mainly including apparel, footwear, handbags, and watches. Headquartered in Nevada, it primarily operates in the US with about 1,300 employees and revenues mounting to $635M in 2008. Thanks to its strength in offering an outstanding customer shopping experience and strong corporate cultures and values related to customer service, it was the largest online shoe retailer in 2008, with a positive growth outlook. However, in the face of possible economic downturn, its underlying insufficiencies in supply chain management and operations may pose a threat to the company’s long term profitability. Nevertheless, the opportunity of possible international expansion may well be exploited to improve sales and expand the business, but such decision still needs critical evaluation and feasibility assessment in whether Zappos can sustain its focus on outstanding customer service levels in such scenario. The online-retail industry in which Zappos operates is one in which the rivalry among existing competitors is high, as it is competing with both click-n-brick stores like Amazon, as well as traditional retail stores such as Footwear Inc which also have a strong focus on the shoe segment. However, the threat of new entrants is very low as a result of the high initial capitalization required for the start of business. There are a large number of buyers in the market. However, high price sensitivity and low switching cost strengthen the buyer`s position; continuing to attract such customers becomes one of the main challenges for Zappos during a likely scenario of economic downturn. Zappos will need to adopt strategies such as importing directly from foreign suppliers, committing to 5 day delivery through ground shipping as opposed to next-day air shipping, offering its own private label, and expanding its Powered by Zappos initiative. Company Value Chain:

Problem Analysis
External Analysis
Porter’s 5 Forces
The following is an evaluation of the external forces acting upon Zappos’ operations and their possible impact in the immediate and future performance of the company: Degree of Rivalry - HIGH: While Zappos is a pioneer player in the online retail segment, in practice it is not only competing with other online retailers, but with brick-and-mortar stores in the traditional retail sector which have substantial experience in the market. Many other players offer similar products to those carried by Zappos’. Bargaining Power of Buyers - MODERATE to HIGH: Given the many alternatives in the market, the switching cost for a customer to other retailers is very low. Consumers are becoming increasingly price-conscious, and with the small potential for differentiation in the non-fashion elite segment, the customer can easily find other similar product options, forcing retailers to offer lower pricing to remain competitive. Threat of New Entrants - MODERATE TO LOW: The barriers to entry in the industry are extremely high, based on the large capital investment required. However the online retail business is still on its growth stages, which may attract new players and investors looking to capture potential markets. Bargaining Power of Suppliers - LOW: Competition for both wholesaler / importer suppliers and direct manufacturers is intense and well established; therefore, the market itself drives the power of the many suppliers down. As discussed, there are many alternatives in the market such that no single supplier is dominant. Threat of Substitutes - LOW: There are no substitute products available for most of the products which Zappos may offer to the public, so such threat is unlikely. SWOT Analysis

Strengths -
Customer-Oriented Culture and Services -...
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