Monday, January 27, 2014

How Zappos goes about delivering "WOW"

    Zappos started out as an online-retailer of shoes back in 1999. Due to it's world renown customer service it has grown exponentially over the past few years. Now a part of Amazon, Zappos has expanded to selling apparel and accessories and its sales has exceeded 1 billion dollars annually. In order for Zappos to stay ahead of its competitors and maintains its legions of loyal customers it has to deliver a wide assortment of merchandises from its distribution center (DC) incredibly fast.  To achieve this objective, Zappos relies on a sophisticated inventory management system.
    The process starts when the shoes are brought to the DC and each pair of shoe is given its own SKU number. This means that each model of shoes can have multiple SKUs due to different sizes, style and color. By having each pair of shoes its own SKU allows the company to have more in depth data, giving the company a database of each shoe's life cycle. Once each shoe is given a label and scanned into the computer system, they are then sent to a pickable location. The crucial part of this process is speed, it is estimated that the time between receiving the goods to having it on the shelf is less than several hours.  This is crucial since the company only keeps a limited supply of any style of shoes in its DC and only shoes that are in the warehouse can be shown on its website. The sophistication of this system allows the company to keep its inventory carrying cost low.
    To further speed up the process, Zappos also employs its own in-house sorting system, Intelligrated. The system allows Zappos to fully automate its sorting and handling system. This system employs a vast array of conveyors and totes that can sort a single-item or multi-item order into appropriate locations from the point of receiving the order to the trucks for shipment.
      Even with returns, the process is highly efficient and systematic. If an item is returned to the DC, it is placed in a dedicated location where it'll be scanned and sorted according to if it was returned in the original packaging or not,  and if the item is still sellable. The individual item code further facilitates this process.

Question: With it's highly sophisticated system to manage inventory going out, how will Zappos manage it's growing array of incoming goods from different suppliers?


1 comment:

  1. I definitely think that Zappos does some amazing work with its inventory management. I spoke about it in my previous blogpost, because I really liked the culture of Zappos, and how its mission to provide quality customer service drives its inventory management and operations as a whole. One of the things that it does is operating its warehouse for 24 hours a day, which Tony Hseih has commented on:

    "We run our warehouse 24/7, which actually isn’t the most efficient way to run a warehouse…but we’re not trying to maximize for picking efficiency. We’re trying to maximize the customer experience, which in the e-commerce business is defined in part by getting orders out to our customers as quickly as possible.”

    This is an aspect of their business in which they've decided the trade-off of better customer relations is worth a less efficient operation. (One of the trade-offs mentioned in Managing Inventory by Hammond/HBS)

    (Source of above quote:


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