Online Retail Business Initiative - Case Study Example

ONLINE RETAIL BUSINESS INITIATIVE (Name of School) (Course Name) (Students’ Name) 2011 Table of Contents INTRODUCTION Business Background ………………………………………. 1 High Level Operations of the Business ………………………. 2 CHINESE SOURCING OPERATIONS SUPPLIER SELECTION, EVALUATION AND PROCUREMENT Low Cost ………………………………………………………. 3 Time and Place Utility ………………………………………. 6 Value Adding Activities ………………………………………. 6 INTERNATIONAL TRANSPORTATION FROM CHINA TO AUSTRALIA ……………………………………………………………….. 8 AUSTRALIAN CUSTOMS, QUARANTINE AND INSPECTION CLEARANCE ……………………………………………………….. 9 SUMMARY AND CONCLUSIONS ………………….……………………. 9 BIBLIOGRAPHY ……………………………………………………………….. 10 LIST OF TABLES Table 1. Comparison of Online versus Physical Stores ONLINE RETAIL BUSINESS INITIATIVE INTRODUCTION A real logistics management situation was provided. In this case, we are assisting in the business development of a new online retail business initiative. Hence, this paper discusses the relevant logistics activities. Business Background Members of a newly formed consortium of domestic and overseas investors have joined forces to create an online retailing company. The members believe that there is a growing market for online retailing in Australia for (1) Car accessories and tools, competing with for example Super cheap Auto retail stores; (2) Leisure products for boating, camping and fishing, competing with for example BCF Boating- Camping-Fishing retail stores; and (3) Electrical household appliances, competing with for example Harvey Norman retail stores Online retailing is a subset of e-commerce and refers to the purchase and sale of goods and services between consumers and retailers using the Internet (Commonwealth 2011). The members of the consortium have researched that Australian consumers are attracted to online shopping due to lower prices, wider range of goods to choose from than those available from bricks and mortar in-store retailers and convenience (Commonwealth 2011). The reduction in Australia’s manufacturing to about 10 percent of the gross domestic product has resulted in an increase in imported consumer goods from for example China (Commonwealth 2007). Due to low cost manufacturing capability in China and a reduction in international trade barriers since China entered the World Trade Organization, many large retail chains have established region based sourcing offices in Asia and China. High Level Operations of the Business The new company is to pursue the strategy of procuring low cost manufactured goods in China. The consortium has investigated if it should locate the company’s distribution center(s) in China or in Australia. The conclusion is that the distribution center(s) should be located in Australia due to transportation cost and the insufficient logistics networks for distribution from China to Australia. The consortium wants to establish a new company and has developed the following outline of its operations. Products for resale are to be purchased domestically and through the China-based overseas sourcing office. The intention is to have suppliers deliver their goods to collection centers in Hong Kong and in Shanghai and then ship the goods in bulk in containers to distribution center(s) in Australia. Although the ultimate intention is to have distribution centers in Sydney, Melbourne, Brisbane and Perth, the company will start with one distribution center located in Sydney and then distribute products to customers in Australia from there. Due to the differences in execution between online retailing and in-store retailing operations the company has decided to build a new distribution center within the next 18 months. The company has not yet decided if it should outsource its international and domestic logistics activities. CHINESE SOURCING OPERATIONS SUPPLIER SELECTION, EVALUATION AND PROCUREMENT Due to old and current trends, China's sourcing operations are changing. Hence, procurement managers are trying to adapt to this opportunity landscape. A different approach is now required that takes advantage of China's more sophisticated manufacturing base. There re several new issues which are starting to impact both the real and perceived competitiveness of China as a source of manufactured goods. Among these are the appreciating currency, increasing labor costs, and others (Evans & Wurster, 2000). Logistics activity can contribute to low product cost and add value to place and time utility. Low Cost There are efficient ways that the organization can implement the below logistics activities to reduce costs. So far, the most efficient way is to seek to achieve supply channel process goals that will move the online retail business toward its overall objectives. The logistics activity mix should be generated in such a way that it would generate the highest possible return on investment over time. So, it is important to efficiently manage the operating cost and capital requirements of the design. There is a need also to determine the most efficient logistics system design on the revenue contribution. The company should determine how much additional revenue would be generated through incremental improvements. The cost of setting up an online enterprise system which includes the online merchant interface e.g.; carts, checkout and payments etc. need to be addressed (Andam, 2003). It can be included as an initial cost factor as well. Online Store seeks to compete with local retailers. There are key points that distinguish online versus physical stores such as follows: Table 1. Comparison of Online versus Physical Stores Online Stores Physical Stores Pricing of products and/or services CHEAPER as compared with those of products / services from physical stores since direct from manufacturers / sellers and did not pass several middlemen and online stores are only required to collect taxes if they have a physical location. MORE EXPENSIVE as compared with those products / services from online stores since it passed through several middlemen and involves transportation expenses Comparison of prices EASIER to compare prices of various products / services online by just clicking. HARDER to compare prices of various products / services Comparison of prices, researches and experiences of other buyers are AVAILABLE ON REVIEWS Comparison of prices, researches and experiences of other buyers are HARDER TO CONDUCT Fewer expenses NO other related expenses required while shopping online REQUIRE other related expenses such as traveling, eating out, impulsive shopping, paying for companion’s purchases and other expenses Compulsive shopping Possibility of compulsive buying is low as compared with shopping from physical stores. Buying things which we do not require are done because of the shop keepers up selling skills. Sometimes we even compromise on our choices because of the lack of choices in those shops. Variety Several brands and products/services from different sellers at ONE PLACE Several brands and products/services from different sellers at DIFFERENT PHYSICAL STORES Buyer can get in on the latest international trends WITHOUT SPENDING MONEY ON AIRFARE. Buyer can get in on the latest international trends BY SPENDING MONEY ON AIRFARE. Can shop from retailers in other parts of the country or internationally WITHOUT BEING LIMITED BY GEOGRAPHIC AREA Can shop from retailers in other parts of the country or internationally BY PHYSICALLY TRAVELING TO THESE PHYSICAL LOCATIONS OR BY ORDERING BY PHONE OR BY MAIL Information on out of stock products is READILY AVAILABLE. Online shops have a provision to accept orders without stock and ship it across to the buyer when the stocks become available. The buyer also has the option of taking the business to another online store where the product is available. Information on out of stock products is AVAILABLE ONLY IF VERIFIED OVER THE PHONE OR EMAIL OR POSTAL MAIL OR BY CHECKING ON THE PHYSICAL SITE. Convenience 24/7 Some are 24/7 some are not No need to dress up to buy need to dress up to buy \ no pollution shopping Shoppers are exposed to pollution. no need to line up and wait till the shop staff/cashier assist you need to line up and wait till the shop staff/cashier assist you better place to buy information products since the buyer can immediately download the information Medium or materials needed to get the purchased information Downloadable items purchased eliminate the Need for material goods Sending gifts is easier. Sending gifts entails several activities like calling or going to the store and sending them. Saving Time shopping can be done in minutes Shopping takes more time than online shopping Crowds No crowds Has crowds especially during Festivals and Special events; Crowds could force buyer to do a hurried shopping; grumpy, irritating people, bad-smelling crowd are a huge turn off; Crowds create a problem in finding a parking place nearby where you want to shop and going back to your vehicle later loaded with shopping bags Discreet purchases Purchase is done in privacy; Online shops are also best for discreet purchases like adult toys, sexy lingerie and others. Other people would see what the buyer purchased. There is a need to make sure that "humanistic" features are to be included in the website such as a live customer service function to aid customers if they have questions about the items they would like to buy. In relation to shipping, online store are to have a local distribution centre (Bonnet, 2000). That way, the items will generally reach faster to the customers but may incur additional inventory cost. There are cost trade-offs in relation to transit time. Place and Time Utility Logistic activities can provide the products available where and when they are needed to the consortiums customers. Logistics would be concerned with those activities (previously defined) that give a product or service time and place value. This separation of the activities of the firm into three groupings rather than two is not always necessary or advisable to achieve the coordination of logistics activities that is sought. Value Adding Activities Logistic activities can add value in one form or another. Marketing and production/operations, when broadly conceived and coordinated, can do an effective job of managing logistics activities without creating an additional organizational entity. Even if a separate functional area is created for logistics within the firm so as to achieve effective control of the firm’s immediate logistics activities, logisticians will need to view their responsibility as one of coordinating the entire supply chain process rather than being just a local logistics activity administrator. To do otherwise may miss substantial opportunities for cost reduction and logistics customer service improvement. INTERNATIONAL TRANSPORTATION FROM CHINA TO AUSTRALIA Ships are commonly used from China to Australia. If an business entity purchases a shipment of goods from China on FOB terms, under these terms, the non-resident seller has agreed to deliver the goods on board a vessel at a named port in China. The enterprise assumes all risk of loss or damage from the time the goods have passed the ship's rail at the port of shipment in China. If the enterprise contracts an Australian freight forwarder to transport the goods from China to the shop located in Australian, there will be a need to clear the goods for home consumption. It is this contract that determines the place of consignment. The supply by the Australian freight forwarder is GST-free being the entity contracted to bring the goods to Australia. The Australian freight forwarder subcontracts a Chinese shipper the transport of the goods to Australia. This supply is also GST-free as the shipper has brought the goods to Australia. The costs of the supply by the Australian freight forwarder needs to be included in the value of the taxable importation as this supply is the overarching transport agreement that brought the goods to Australia. AUSTRALIAN CUSTOMS, QUARANTINE AND INSPECTION CLEARANCE For those importing goods by post, there is a need for the goods to be cleared by the Australian Quarantine and Inspection Service (AQIS). There is also a need for permits and licenses from the Customs and Border Protection. They should be delivered by Australia Post. There is no need to clear the goods or pay customs duty, taxes and Customs and Border Protection charges unless the goods are alcohol or tobacco products or have a declared or assessed value of more than A$1,000. SUMMARY AND CONCLUSIONS Business logistics management can be important to an online retail business’ competitive strategy. Revenue generation is one aspect of the business that can be enhanced as a result of efficient management of business logistics. Among the logistics aspects are inventory, transportation, purchasing, order processing, warehousing, materials handling, customer service standards, production and packaging. Setting the level of the logistics activities will help ensure that services / products are available to customers at the time and place required. These products / services have to be in the condition and form desired. Hence, it is in the most profitable and cost-effective way. BIBLIOGRAPHY Andam, Zorayda Ruth. E-Commerce and e-Business. E-ASEAN Task Force, May 2003. UNDP- APDIP. Bonnet, Kendra. 2000. An IBM Guide to Doing Business on the Internet. U.S.A.: McGraw Hill. Evans, Philip and Thomas S. Wurster. 2000. Blown to Bits: How the New Economics of Information Transforms Strategy. U.S.A.: Harvard Business School Press. Read More