Zappos

Problem 1:

Zappos faces an obstacle in their drop shipping operations model

Zappos prides themselves in their outstanding reputation for customer service, constantly trying to enhance the “WOW” experience for customers, suppliers, and other affiliates. However, in their first year of operation, Zappos shipping methods were not adhering to their customer’s satisfaction. Zappos used a drop shipping model to deliver its inventory. According to this model, customers would order shoes directly from the Zappos website, the orders would then be forwarded to the shoe companies to be fulfilled. There were two major problems with this method. Firstly, the product information that customers received on Zappos website was not 100 percent reliable. The vendors, who were responsible for supplying inventory information to Zappos, had at times, poor timelines of information updates. There was also a lack of a proper automated system to manage the inventory system. Most information that Zappos received from suppliers was by phone, fax, or email, which required a manual inventory update. Customers were disappointed when they placed orders for items that were listed as in-stock but really weren’t. Secondly, shipping was the responsibility of the supplier. They shipped the order at their convenience. Zappos had no way of knowing if the customer’s order was fulfilled unless the customer called to complain. These two problems had a large negative effect on their customer’s satisfaction and their inventories efficiency.

Solution

As early as November 2000, Zappos realized the negative effect drop shipping had on their company and decided to bring their inventory in-house. They initially started with having their inventory only partially in-house, but by March 2003 Zappos completely stopped using drop shipping. They immediately saw a 25 percent decrease in short term profit(due to newly acquired shipping and inventory costs), but had the ability to look past that and see the...