Internet retail operations : integrating theory and practice for managers

260 Pages·2011·3.396 MB·English

by  Timothy M Laseter, Elliot Rabinovich

Business Management
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Internet Retail Operations
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Integrating Theory and Practice for Managers s

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Timothy M. Laseter s Elliot Rabinovich
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The increasing popularity of online shopping makes Internet retailing ic
h
a megatrend that cannot be ignored. In Internet Retail Operations:
Integrating Theory and Practice for Managers, Laseter and Rabinovich
collaborate to share enduring insights on operational issues and principles
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for managing Internet supply chains by combining academic rigor and years n
of broad consulting experience. t
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Covering a range of emerging issues supported by a variety of case studies, n
the book details the evolution of information technology’s role in retail e
supply chain networks, its impact on supply chain networks, and how this t

has changed service operations. Topics range from the “Last Mile” delivery
R
challenge to the theory of network effects and economies of scale. The book
e
brings the concepts to life by drawing upon cases ranging from infamous
t
failures such as Webvan and Pets.com to successes ranging from Amazon a
and eBags to lesser-known start-ups such as RelayFoods.com and Better i
l
World Books. The book includes tables, vignettes, and graphs that make the
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content practical and relevant.
p
e
As you will learn, many attempts at Internet retail do not succeed, some
r
because they fail to appreciate the fundamentals, others because they have
a
simply been ahead of their time. Many more years of experimentation and
t
growth lie ahead. Drawing equally on theory, research results, and real-world i
o
experience, the book provides strategies for overcoming the challenges of
n
building operations capability in the evolving world of Internet retailing.
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K10072
ISBN: 978-1-4398-0091-1
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Internet Retail
Operations
Integrating Theory and
Practice for Managers
SUPPLY CHAIN INTEGRATION 
Modeling, Optimization, and Applications
Sameer Kumar, Series Advisor
University of St. Thomas, Minneapolis, MN

Internet Retail Operations: Integrating Theory and Practice
for Managers
Timothy M. Laseter and Elliot Rabinovich
ISBN: 978-1-4398-0091-1
Human-Computer Etiquette: Cultural Expectations and the Design
Implications They Place on Computers and Technology
Caroline C. Hayes and Christopher A. Miller
ISBN: 978-1-4200-6945-7
Closed-Loop Supply Chains: New Developments to Improve the
Sustainability of Business Practices
Mark E. Ferguson and Gilvan C. Souza
ISBN: 978-1-4200-9525-8
Connective Technologies in the Supply Chain
Sameer Kumar
ISBN: 978-1-4200-4349-5
Financial Models and Tools for Managing Lean Manufacturing
Sameer Kumar and David Meade
ISBN: 978-0-8493-9185-9
Supply Chain Cost Control Using Activity-Based Management
Sameer Kumar and Matthew Zander
ISBN: 978-0-8493-8215-4
SUPPLY CHAIN INTEGRATION 
Modeling, Optimization, and Applications
Internet Retail
Sameer Kumar, Series Advisor
University of St. Thomas, Minneapolis, MN

Operations
Internet Retail Operations: Integrating Theory and Practice
for Managers
Timothy M. Laseter and Elliot Rabinovich
ISBN: 978-1-4398-0091-1
Human-Computer Etiquette: Cultural Expectations and the Design
Implications They Place on Computers and Technology
Integrating Theory and
Caroline C. Hayes and Christopher A. Miller
ISBN: 978-1-4200-6945-7
Practice for Managers
Closed-Loop Supply Chains: New Developments to Improve the
Sustainability of Business Practices
Mark E. Ferguson and Gilvan C. Souza
ISBN: 978-1-4200-9525-8
Connective Technologies in the Supply Chain
Sameer Kumar
ISBN: 978-1-4200-4349-5
Financial Models and Tools for Managing Lean Manufacturing Timothy M. Laseter s Elliot Rabinovich
Sameer Kumar and David Meade
ISBN: 978-0-8493-9185-9
Supply Chain Cost Control Using Activity-Based Management
Sameer Kumar and Matthew Zander
ISBN: 978-0-8493-8215-4
CRC Press
Taylor & Francis Group
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Boca Raton, FL 33487-2742
© 2012 by Taylor & Francis Group, LLC
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No claim to original U.S. Government works
Version Date: 20110705
International Standard Book Number-13: 978-1-4398-0092-8 (eBook - PDF)
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Contents
Preface........................................................................................................xi
Acknowledgments....................................................................................xiii
  1  Internet.Retailing:.From.Experimentation.to.Execution...................1
Lessons of the Last Bubble ......................................................................2
Too Few Failures ...........................................................................2
Bigger Is Riskier ............................................................................3
First-Mover Fallacy ........................................................................4
The Herd Instinct ..........................................................................5
Test All Assumptions .....................................................................7
The Unfolding Story ...............................................................................8
  2  The.World.Wide.Web.and.Information.Technology........................11
What Do We Mean by the Internet? .....................................................11
Technological Advances in the World Wide Web That Enabled the
Commercial Adoption of the Internet ...................................................13
Internet Business Models: A Framework ...............................................14
Characterizing Internet Retailing Models .............................................15
The Role of Merchandise, Services, Promotions, Navigation, and
User Interfaces in the Success of Internet Retailing Ventures ................18
Internet Commerce Functionality and Its Potential to Generate
Value in the Supply Chain ....................................................................22
Web-Enabled Cost Efficiency and Customer Benefits ...........................23
Web-Enabled Collaboration among Individuals ...................................24
References .............................................................................................26
  3  Scale.Economies.and.the.Network.Effect.in.Internet.Retailing.......27
Scale Economies ...................................................................................28
Network Effects ....................................................................................31
v
vi  ◾  Contents
Economies of Scope ..............................................................................33
Defense versus Offense .........................................................................35
  4  Operations.Strategy.for.the.Internet................................................37
Operations Strategy ..............................................................................38
From Manufacturing to Operations Strategy ........................................39
Structural Decisions..............................................................................40
Vertical Integration ......................................................................41
Facility Capacity ..........................................................................42
Facility Location ..........................................................................42
Process Technology ......................................................................43
Operations Capabilities .........................................................................44
Customer Service Management ...................................................44
Operations Planning and Control ................................................45
Purchasing and Supplier Relationship Management ....................46
From Theory to Practice? ......................................................................47
  5  Supply.Chain.Management.for.a.Virtual.World..............................49
Long Tails and Unlimited Shelf Space in Internet Retailing .................50
The Internet’s Long Tail of Sales ..................................................50
Product Variety on the Internet: A Treasure Trove or a
Source of Trouble? .......................................................................51
Rising to the Challenge ...............................................................52
Expenditures and Risk in Internet Retailing ................................54
Ambiguity and Risk in Internet Retailing ...................................55
Demand Management ..........................................................................56
The Role of Emergency Transshipments ......................................57
Multichannel Retailing: Combining Internet and Brick-and-
Mortar Channels ..................................................................................59
References .............................................................................................61
  6  Defining.the.Value............................................................................65
What Are the Main Internet Services That Exist in a Supply Chain
Context? ...............................................................................................65
Price Setting ................................................................................66
Convenience ................................................................................67
Selection ......................................................................................68
How Can the Internet Be Used to Offer Services That Contribute
to the Development of Competitive Advantages? ..................................69
Contents  ◾  vii
  7  Outsourcing.Internet.Retail.Operations..........................................75
Internet Retailing Decisions to Outsource Their Distribution
Facilities’ Footprint ...............................................................................76
Logistics Outsourcing Decisions in the Broader Internet Retailing
Context .................................................................................................79
Barriers and Challenges to Adoption ...........................................80
Interorganizational Transactions on the Web ..............................81
Toward the Development of Service Networks ............................81
Creating Positive Network Effects ...............................................83
Increasing Revenues............................................................84
Lowering Costs ...................................................................85
Conclusions and Implications ...............................................................88
References .............................................................................................89
  8  Understanding.the.Drivers.of.Cost-to-Serve....................................91
The eBags Story ....................................................................................92
Trial and Error ......................................................................................93
Future Growth ......................................................................................96
Accounting for Intangibles ....................................................................99
  9  The.Last-Mile.Challenge.................................................................101
First-Mover Delivery Models ..............................................................102
Limited Online Sales ..........................................................................103
The Role of Delivery Economics .........................................................103
High Last-Mile Costs .........................................................................107
New Trade-Off: Speed versus Variety .................................................107
Entrenched Competitors .....................................................................108
The New Intermediaries ......................................................................109
Store and Office Solutions....................................................................111
Labor-Saving Models ..........................................................................112
Continued Experimentation ................................................................115
10  Managing.Product.Returns.............................................................117
The Magnitude of Product Returns in Internet Retailing ...................118
Tackling Product Returns ....................................................................119
The Role of Third-Party Specialists .....................................................120
Key Principles for Internet Retailers to Follow ....................................121
Managing Internet Product Returns: A Focus on Effective Service
Operations ..........................................................................................122
Customer Effort .........................................................................122
Processing Returns Consistently and Exceeding Customer
Expectations ..............................................................................124
viii  ◾  Contents
Customized Options for Product Returns .................................125
Challenges and Opportunities in Remarketing Product Returns ........126
References ...........................................................................................129
11  Amazon:.Supply.Chain.Strategy.and.Innovation...........................131
Amazon’s Structural Decisions ...........................................................132
Amazon’s Operational Decisions ........................................................136
Keeping the Virtuous Cycle Moving Forward .....................................141
12  eShip-4U........................................................................................143
The Last Mile ......................................................................................145
eShip ...................................................................................................147
The Deutsche Post Pilot ......................................................................150
Deutsche Post: A Company in Transition ..................................150
The Packstation 24 Trial Run .............................................................152
The ADM ...........................................................................................153
ADM Hardware ........................................................................153
The Network ...............................................................................155
Entering the U.S. Market....................................................................156
The ATM/ADM Analog and “Independent Operator” Model ...158
Partnering with E-Tailers ....................................................................160
A Boston Pilot? ..........................................................................160
References ...........................................................................................163
13  FreshDirect:.Expansion.Strategy....................................................165
FreshDirect: Home Grocery Delivery .................................................166
Beef Industry Background ..................................................................168
Cattle Farmers ....................................................................................170
Feedlots and Slaughterhouses ..............................................................171
Packers ................................................................................................172
Grocery Stores ....................................................................................173
Restaurants .........................................................................................174
Direct Retail: Omaha Steaks ..............................................................175
Production .................................................................................176
Shipping ....................................................................................176
Direct Retail: Online Grocer ..............................................................176
Farm to Fork: Supply Chain Coordination .........................................177
A Question of Priorities ......................................................................177
14  Musictoday,.LLC:.Managing.Inventory.for.Night.Train...............179
From One Band to Many....................................................................181
The Problems of Success......................................................................182
Contents  ◾  ix
Getting the Train Back on Track ........................................................182
Train at the Crossing ..........................................................................193
15  Better.World.Books........................................................................195
Company Background ........................................................................196
Company Culture ...............................................................................197
Used-Books Industry ..........................................................................197
Trends .................................................................................................198
The Internet as Vehicle for Books Sales ...............................................199
Supply Chain of Internet Book Retailing ............................................200
Value Proposition ................................................................................200
Operations ..........................................................................................201
The South Bend Facility ......................................................................202
Expansion Options .............................................................................205
References ...........................................................................................206
16  Cooking.com..................................................................................207
Company History ...............................................................................208
Overview of Kitchenware Industry .....................................................209
Cost-to-Serve Drivers ..........................................................................210
Inbound Shipping ......................................................................214
Receiving and Put-Away ............................................................214
Inventory-Carrying Cost ...........................................................214
Pick, Pack, and Ship ..................................................................216
Outbound Shipping ...................................................................218
Returns ......................................................................................218
Conclusion ..........................................................................................218
17  RelayFoods.com,.Inc......................................................................219
RelayFoods.com’s History ...................................................................220
U.S. Grocery Stores and Supermarkets ...............................................221
Alternative Online Grocery Retailing Models.....................................221
Webvan......................................................................................222
FreshDirect ................................................................................223
RelayFoods.com .........................................................................227
Operations Strategy for RelayFoods.com ............................................229
18  eBags:.Managing.Growth...............................................................231
eBags History ......................................................................................232
The Luggage Industry .........................................................................233
eBags Business Model .........................................................................235
eBags Operations Model .....................................................................237