Author Archives: AccountMate

Zulily’s “Inventory-Lite” Model For E-Commerce

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MAY 11, 2014

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zulilyOne of the Internet’s fastest-growing retailers is also one of its slowest shippers, reports The Wall Street Journal (May 4, 2014). The mom-focused discount site takes an average of 2-3 weeks to get merchandise to customers, well off the pace of online veterans like Amazon.com and ShopRunner Inc., which have been training shoppers to expect delivery in 2 days.

The slow shipping times are the result of a bare-bones distribution system that is enabling 4-year-old Zulily to turn a profit in an industry where some of its peers have struggled. Zulily’s sales have soared thanks to its ability to get women to browse regularly for deals and make what are largely impulse buys before the sales end.

But Zulily’s Achilles’ heel may be shipping. Last year, it took an average of 11.5 days for items to be shipped from Zulily’s warehouses after customers ordered them. The reason: Zulily doesn’t buy in advance most of the products it offers. Instead, it orders the items from vendors after the sales end. Vendors then ship the merchandise in bulk to one of two Zulily warehouses, where the products are sorted and combined with other orders before being shipped back out.

“It’s more efficient to do it this way,” says the company’s COO. It also doesn’t accept returns. He adds: “The inventory-lite model is why Zulily can afford to sell a wide range of discounted merchandise from more than 10,000 vendors.” The company has been investing in automation at the warehouses so that they can handle more inventory more quickly. “We’re always looking to improve speed and efficiency.”

Customers going to Zulily’s website don’t know ahead of time what deals they will find, and the retailer tries to work the shipping lag into its sales—for example, it is currently selling summer apparel for women and children.

This post provided courtesy of Jay and Barry’s OM Blog at www.heizerrenderom.wordpress.com. Professors Jay Heizer and Barry Render are authors of Operations Management , the world’s top selling textbook in its field, published by Pearson.

FedEx Jolts E-Commerce Companies

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MAY 10, 2014

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fedex2“The joy ride is over,” said the president of a shipment-tracking software company. FedEx is changing the way it charges to ship bulky packages, jolting e-commerce companies with price increases for delivering items as diverse as diapers, shoes and paper towels (The Wall Street Journal –May 7, 2014). Instead of charging by weight alone, all ground packages will now be priced according to size. In effect, that will mean a price increase on more than 1/3 of its U.S. ground shipments. The move will greatly affect bulky but lighter weight items which many people have delivered on a regular basis, as well as Zappos.com shoes, which ship for free, including free returns. Indeed, shoe shoppers are encouraged to buy multiple pairs, keep what fits and return the rest. Avid Web shoppers do the same with sweaters, dresses, and jackets at retailers like J. Crew, Macy’s, and Banana Republic.

Under FedEx Ground’s current pricing, a one-pound square package with 12-inch sides—which might hold several shirts would be priced by weight and cost $6.24 to ship. After the changes, the same box would be priced at $8.83, a 41% increase. If an item is heavier than its “dimensional weight,” the customer will be charged the higher amount.

The change in pricing could dramatically affect both online shoppers and retailers. Someone will have to swallow the estimated hundreds of millions of dollars in extra shipping costs. Shipping is already one of the biggest and most rapidly increasing costs for big online retailers. For FedEx, it comes down to efficiency. Lightweight e-commerce orders take up a lot of room in the truck, and Amazon and other shippers don’t always match the box size to what is inside. (Companies like Zappos do use elaborate algorithms to determine exactly how many items should ship in a box to minimize the cost.)

This post provided courtesy of Jay and Barry’s OM Blog at www.heizerrenderom.wordpress.com. Professors Jay Heizer and Barry Render are authors of Operations Management , the world’s top selling textbook in its field, published by Pearson.

Otis Finds Reshoring Manufacturing Is Not Easy

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MAY 7, 2014

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Otis demonstrating his "safety lift" in 1854

Otis Elevator has found that bringing manufacturing jobs back to the U.S. can be a lot trickier than it sounds, writes The Wall Street Journal (May 3-4, 2014). The company’s 2012 move to relocate its plant from Mexico to South Carolina was hailed as a sign of a renaissance in American manufacturing. The relocation was supposed to save money and help fill orders faster by putting the people who make new elevators next to the engineers who design them, and their customers. But the reality hasn’t been so smooth. Production delays created a backlog of overdue elevators. Customers canceled their orders. The Nogales plant Otis was leaving behind had to stay open for half a year beyond its planned closing date to deal with the backlog.

The company’s experience shows that with supply chains and skilled labor following American factories overseas in recent decades, coming home can be more complex than just deciding where to site a plant. When the elevator maker opened its new 423,000-square-foot facility in a vacant Maytag factory in Florence, S.C., it was a notable participant in a trend of “reshoring,” where some companies reversed the movement of manufacturing work offshore to places like China.

For Otis, the return to the U.S. was supposed to herald a step up in efficiency. The relocation was to lower the company’s freight and logistics costs by 17%, and would cut costs a further 20% by having all of its white-collar elevator design and production workers on hand at the factory. The company now says it was trying to do too much at once. In addition to moving the plant, Otis also was replacing the computer system that manages supply, manufacturing, shipping and financial information. “The challenge, I think, was moving your supply chain, with your factory and your engineering center all at once,” says the CFO

This post provided courtesy of Jay and Barry’s OM Blog at www.heizerrenderom.wordpress.com. Professors Jay Heizer and Barry Render are authors of Operations Management , the world’s top selling textbook in its field, published by Pearson.