Differences between Online and In-Store Retailing to the New Company Being Established in Australia - Case Study Example

EXECUTIVE SUMMARY Retailing has always been taking various dimensions in the recent years. It is often taken for granted that goods and services will always be available in the stores where one can just go and get them. The only thing consumers got in their minds is their (products) availability and not how they are supplied. Consumers’ viewpoints and needs have altered. The enthusiasm to wait for satisfaction and being served has really reduced and they expect immediate product availability and satisfaction This has made retailers to take a different path in dealing with customers and some have combined the traditional brick and motor business with the online one while others prefer to go online completely. In this paper we are going to discuss both types of retailing- online and in store in relation to the new company being established in Australia. This will help the consortium come up with the best decision in deciding whether to go online or in store. The main objective and motivator being the price and convenience, discussion will be based on the order management and customer service, Australian distribution centre and design and also the physical distribution in Australia. TABLE OF CONTENTS EXECUTIVE SUMMARY 1 TABLE OF CONTENTS 2 INTRODUCTION 3 DISCUSSION 4 Order management and customer service 7 Australian distribution centre design and operations. 9 Physical distribution within Australia 11 Summary of differences 13 CONCLUSION 14 LIST OF REFERENCES 15 INTRODUCTION Logistics refers to the supply chain section that is involved in the effective and efficient movement of goods, services or even information from their origin which is mostly the supplier to consumer. It’s mostly crucial in ensuring customer’s maximum satisfaction and also meets the legal requirements (Christopher 1997). Logistics management ensures that there’s effective forward and reverse movement of goods or services from their origin points until consumption. There are stages involved from the time the goods are manufactured until they reach the consumer and logistics management ensures that this process is efficient and effective to ensure consumer’s satisfaction. Managing the mix of the logistics in an integrated retail supply chain and at the same time aiming to balance the cost and service requirements is the most essential element in logistic management (Sparks 1998). Retailing and logistics are mostly concerned with making the goods or services available to the customer at the right time and place- ensuring product or service availability all the time. Due to the worldwide emerging technology there has developed a retailing business that is trying to evoke the physical analogy of business. This is online retailing whereby the buyer and seller transact their businesses online via the internet and here no intermediary service is involved (McKinnon 2006). There’s no physical contact in the shopping centers or bricks and motor retailers. This has altered the customers’ beliefs and needs and they expect instant product or service availability and satisfaction at their own convenient places and time. Physical distribution and material management have been replaced by logistics management as shown in the figure below (Figure 1.0). This logistic transformation derives from cost and service requirements and also retailer change (Matthews & Hendrickson 2000). Materials management Physical distribution f Logistics management. Figure 1.0. There are three perspectives that should be managed extremely effectively if any organization is going to respond timely to market dynamics (Christopher 1997). They include The speed at which one brings an opportunity to the market (marketing time). The speed at which one attends to a customer’s need (serving time). The speed one takes to adjust the output to meet demand’s expectations( reaction time) He uses these to come up with means of managing lead time. DISCUSSION In analyzing the case for and against online retailing in Australia we will consider the two retailing methods. First the traditional or in–store retailing whereby there’s a retail outlet. In this case goods are transferred from the manufacturer via distributors or warehouses. The consumer purchases the product from the store or retail outlet. The second one is the online retailing which is commonly known as e-commerce whereby the products are transferred from the manufacturer to one warehouse and then to a regional hub from where it is sent again to the customer. Here the customer does not need to go to the store and take the product home by themselves as in the case of traditional retailing (Sparks 1998). There are two aspects that are motivating Australians to switch to online retailing. These are mostly the price and convenience. Mostly consumers prefer to shop online instead of venturing in to the stores and so there’s no reason why retailers in Australia can’t establish strong online systems to supplement their in store operations. They’re facing such challenges as the manufacturers’ unwillingness to trade online though. The local traders are competing on convenience aspect while the big traders have no issue with the manufacturers trying to use online retailing as a system of trade. The major problem therefore is the other motivator, price, because in order to compete on this, there has to be fundamental supply chain management or logistics as well as perfect business models in place. For years, traders in Australia both wholesalers and manufacturers have been able to meet the demand requirements, just operating on average sales and mark up. Now they are facing competitive markets from foreign traders who are operating in larger, more competitive and lower-cost markets. The Australia’s retailers are going online offering the same prices as those in their in store retails which cannot work efficiently considering the competitive nature of prices for online products. Their prices are likely to be higher than those of foreign retailers online. This can only be corrected by eliminating the inefficiencies from the supply chain and offering competitive prices as those of the foreign retailers. Otherwise the exports will be so expensive as compared to the overall retail business (Sparks 1998). To come up with an integrated system that will ensure effective and efficient business process there has to be components of the ‘logistic mix’. We identify five of them as follows. Inventory: both online and in store retailers hold stock what varies is the amount of available stock to meet the market demand. Storage: these could be in terms of warehouses and distribution centers or the retail shops. Retailers need storage facilities to enable them respond to demand for their products Transportation: the last stage of the product is the customer having it. So products are transported at some point from their point of origin to consumption. Packaging: consumers tend to buy products in small quantities. Decisions sometimes depend on the product packaging and presentation. Therefore retailers need to come up with products that are easy deal with in terms of logistics. Communications: it’s necessary to have product knowledge, the amount of stock, prices and how they are moving. Retailers therefore are concerned with their ability to use information systems to get efficient logistic operations. All these components should be interlinked to eliminate functional barrier. It’s clear that online retailing has emerged to replace the existing traditional physical storefronts. Many have embraced the technology due to a couple of reasons. It’s argued that online products are less costly, there’s larger selection, and it’s time saving and convenient. There’s home delivery for people with disabilities or those who may feel lazy to go out shopping for certain reasons. This encourages many people considering that a typical shopper goes to shop 2.2 times in a week (Matthews & Hendrickson 2000). The e-commerce business gives product and service information through the web. Therefore it’s just a click by the customer and they get what they want. There’s customization of lists of shopping that’s often bought and also personalized shopping which lack in the in store retailing. Storing orders on the web simplifies repeat orders. Apparently not everyone has embraced this online shopping technology that has replaced the many trips people make to the stores. In 2000, only 24.4% of those who did online shopping did shop in a month more than once (Hugos 2006). In relation to the Australian company being built in the next 18 months we will examine the similarities and differences between the online and in–store retailing to enable the consortium come up with a wise decision in line with the logistics management. The major clear evidence is the way the products are displayed to customers and how they enter the store to browse around. So selling online and selling via brick and motor store front can be analyzed as follows; This is going to be discussed in 3 dimensions; Order management and customer service This is how an organization facilitates the customer in achieving what they want. Order management entails managing the various activities involved in the order cycle or supply chain. This is also called lead time which refers to the time taken between when the consumer places an order up to the time the product is actually received. The customer places an order (order transmittal), when the seller receives the order he orders the warehouse or an appropriate location to fill the order (order processing). The goods are then loaded to a carrier (order picking and assembly) and then delivered to the customer- order delivery (Hugos 2006). Customer service aims to keep them satisfied and happy. It gives them the perception of a retailer easy to deal with. This is achieved through; Reduced lead time Dependability in terms of making consistent orders, safe and complete delivery. Effective and efficient communication between the retailer and customer and Convenience in terms of ease of dealing with the retailer. Satisfaction of the customer is of essence whereby the actual experience is compared to the expected experience. Hence it’s achieved when the expected is less than the actual experience. Communication is of essence when it comes to dealing with customers and maintaining them (Ring & Tigert 2001). In the traditional in-store retailing, it’s easier to communicate to customers one on one as compared to the online retailing. In online retailing the supplier has a hard task explaining and answering all questions by the customer through texts and graphics to ensure there’s no confusion. This sometimes may be real hard especially when the product descriptions or designs tend to be similar (Naylor, Naim & Berry 1997). Availability of the products is another aspect to be considered here. When dealing with in store retailing the customers are able to touch and examine the goods physically and see the ones available in the store. This is advantageous as the customer is seeing whatever they are buying unlike in the online retailing where products are represented in diagrams, texts descriptions and graphics. One may get the description wrongly and end up with the wrong product (Naylor, Naim & Berry 1997). Customization is another aspect that is there in online retailing and not in store retail. This however is a complement to the offline shopping. This is giving the customers an opportunity to customize a product of their choice via the website. This makes the customer have a sense of belonging at the same time creating a good relationship between the customer and seller while attracting more customers. They also give the customer a chance to customize designs from virtual images to real ones. This is shown in figure 1.1 below. Customizing designs on the web. Figure 1.1 Engagement is another aspect that brings a difference in online and in store retailing. A social interaction in cyberspace through frequent contacts within a boundary or place that is specified and delineated by a mutual topic or a topic of interest is the definition of an online community (Ring & Tigert 2001). This allows the customer meet many more customers online and be able to discuss the pros and cons of the products and gets a wider variety to choose from. This is different in the traditional brick and motor store where the customer just meets the seller and therefore cannot discuss in the customer’s point of view as his main business is to convince the customer to buy, make a sale and enjoy the profits. Another attracting difference with regards to customer service is the price. Normally customers are more attracted to where the prices for the same commodity is lower as it will give the same amount of utility. Generally online retailers trade at lower prices because mostly they do not incur rent costs or other overhead costs. There are discounts online sometimes when one meets certain minimum requirements when purchasing. In the other offline retail business prices are much higher as there are many costs involved in the business that need to be catered for. Furthermore some retailers in the offline markets do sell returned goods at a lower price (McKinnon 2006). Australian distribution centre design and operations. Every warehouse design formation is characterized by the goals, what is to be achieved and in this case the Australia wants to achieve low prices, wider range of goods to choose from and convenience. The constraints also need to be considered- the boundaries in which the design of the warehouse must fit in. A successful design needs the goals and constraints articulated. As the design progresses the goals become detailed and are applied to smaller ‘building blocks’ of the whole design (Mason- Jones et al 2000). The whole idea is then to work shop the goals and constraints through each of the design and implementation stage and then apply them to the being designed system. This therefore will require them to think about the costs of starting up the business and the one that will minimize the costs so as to maximize their profits as much as they can. The amount of capital required to start the two retailing businesses vary. For the traditional brick and motor stores the budget could be bigger since space should be leased or rent paid. Location expenses like goodwill, taxes or transportation costs should also be factored in. In comparison to the online retailing there are no store leases or rent for the building required. Therefore it’s easier to start an online business than the traditional one in regards to start up costs (Langevin & Riopel 2005). Technology is another vital aspect that can’t go unmentioned. This is another aspect that needs to be considered in deciding whether to go online or in store retailing. This refers to the amount of technology that’s required to run these businesses. Ring & Tigert (2001) assert that online technology is changing everyday and so online retailers need to keep up with the pace of technology in order to adjust to market requirements as technology improves. For the traditional the technology is usually the same day in day out and so it rarely changes (Hugos 2006). Growth is also a fundamental aspect to be compared when it comes to online and in store retailing. As noted by McKinnon (2006), growth can be achieved in both online and offline businesses. However there’s much growth in the online business as compared to the in store retail business. Mostly in store retailing only caters for the local market whereas online retail caters for everyone and anyone anywhere who is connected to the internet. In store retail takes much more time to grow and will need additional capital and start up costs for new brick and motor locations (Langevin & Riopel 2005). Operational costs also differ in the case of online retail and in store retailing. The brick and motor stores require some operational costs like water, rent, electricity and salary to workers. An online business on the other hand reduces these costs as it can be run from anywhere (Harrison, Christopher & Van Hoek 2009). The only expense incurred mostly in online retail business is the cost of employing a technical expert for daily maintenance of the system or repair incase of breakdown. Otherwise an online business can be run from home and thus saving huge amounts of costs (Naylor, Naim & Berry1997). Physical distribution within Australia Physical distribution involves the transportation of products or raw materials from their place of origin to the consumer. The cost of transporting these goods need to be assessed in order to determine the best and efficient way to store them which involves warehousing sometimes. Physical distribution deals therefore with stock control, packaging and handling of the inventory. It’s also concerned with order processing, marketing and customer relations because they are related activities. In the case for the Australian company there needs to be efficient and effective physical distribution management for controlling the movement of the products from Sydney which is the distribution centre to the customer (Mason- Jones et al 2000). In case they’ll go for in store retailing these costs will be higher as they have to move the goods from Sydney to another store where customers come to buy. Goods will replenish slowly and fewer goods will be available as compared to online retailing (Christopher 2007). While marketing gives rise to demand, physical distribution management ensures satisfaction of the demand faster, capably and also cheaply. In store retailing, if marketing is conducted at all, it will just be done at the purchasing point which is less effective as compared to online retailing where marketing is done at all stages of the supply chain (Hugos 2006). Online retailing ensures delivery of goods in the just in time system unlike the in store where goods can be delayed. The online process is integrated with other logistic systems and inventory. There’s advanced distribution processes which may employ tracking of satellite and routing trucks, cargo containers and also elaboration of monitoring of data and storage capabilities (Naylor, Naim & Berry1997). Considering the high population in Sydney the environmental cleanup and waste disposal will be something of importance to consider. In relation to online and offline retailing their environmental impacts differ. The transactions that take place in the internet tend to be environmental friendly as compared to the traditional in store retailing. For instance there’s reduction in retail space, emissions from transportation vehicles to the stores is avoided, the stock and its wastes is also avoided. On the other hand online retailing encourages maybe transportation via air across the country say from China to Australia and then a local truck for local delivering the good. The goods are packaged singly in most cases and reuse of the packaging may not exist. The impact on the environment is most significant and the net impact of various logistic systems may not be obvious (Mathews 2000). Products are often bought online and also in retail stores. There’s a theory behind unsold stock in both cases whereby after the peaking of sales these unsold items may be recycled, sold at a discount or discarded. Online retailing or e commerce minimizes the size of the unsold stock (because the inventory point is only one) as in the case of Sydney being the distribution point in Australia. This is beneficial to the environment since it eliminates the issue of warehousing and also paper production (McKinnon 2006). The location also plays a significant role here. There’s geographical boundary when it comes to traditional brick and mortar retailing. This may limit the number of customers as well as the foot traffic from those shopping more so when they are in small cities or metro areas. Poor transport facilities or infrastructure to the actual physical location of the business may limit customers. On the other hand online retailing caters for local, national as well as international clients without any barriers (Mathews 2000). According to Mason- Jones et al (2000), location also entails making the product readily available. In online selling the model is at the customer’s fingertips and they don’t have to drive miles away to get the product. In case of Sydney being the distribution centre, it’s highly populated and therefore there’s customers’ traffic thereby making online retail easier. In store shopping on the other hand is limited to sell at local level but one can test the new machine being bought in person and know whether it’s functioning properly. Depending on the size of the store, the selection may be limited but the availability is almost certain. This is not the case in online retailing (Langevin & Riopel 2005). Summary of differences Traditional Retail Online retail Order management, Customer service Customers are able to touch and examine the goods physically and see the ones available in the store. There’s no customization of products by customers. There’s face to face communication between the customer and supplier. The online retailing where products are represented in diagrams, texts descriptions and graphics. Customers can customize the online products. The supplier has a hard task explaining and answering all questions by the customer through texts and graphics. centre design and operations Technology is static It mostly caters for local market High start up and operational costs Technology is dynamic It caters for local, national and international markets. Less start up and operational costs CONCLUSION After analyzing the Australian business as whether to go online or in store retail certain points are clear. Firstly, for a successful company to survive there should be solid logistics, profitable and competent management in terms of logistics. Online retailing is more or less costly as compared to the in store retailing. Sometimes the population and order size plays a major role in determining these costs. Online retailing has got cost advantages and environmental benefits as compared to in store retailing. It’s clear that modern logistics and supply systems depends extremely heavily on information technology. Logistic has now taken a different angle from just focusing on product movement but also information movement. It remains clear that distribution of products will still take place involving vehicles though what remains as the key to an effective and efficient logistic system is data and information control. Modern retailing that’s mostly associated with online retailing cannot be used solely. In a company transport and warehousing cannot take place as separate operations. Thus logistics is integrating the company, suppliers and customers together. The consortium formed will play a major role in that partnership is a real strong element in online retailing and logistics because the ability to cooperate and work with other people or companies is the key to a successful business. LIST OF REFERENCES Christopher, M.,2007. Marketing Logistics. Oxford: Butterworth-Heinemann. Harrison, A. Christopher, M. & Van Hoek, R., 2009. Creating the Agile Supply Chain. Corby: Institute of logistics and transport. Mason- Jones, R. et al., 2000. Lean, agile or leagile? Matching your supply chain to the market place. International Journal Production Research, 38 (17) pp 4061-70 Matthews, H. & Hendrickson, C., 2000. Environmental and economic effects of E-commerce: A Case Study of Book Publishing and Retail Logistics, In Transportation Research Record Forthcoming. New York: John Wileys. McKinnon, A., 2006. The development of retail logistics in the UK: a position paper. Technology Foresight: Retail and Distribution Panel. Edinburg: Heriot-Watt University. Naylor, J, Naim M, & Berry, D., 1997. leagility: integrating the lean and agile manufacturing paradigm in the total supply chain. International Journal of Production Economics, 62, pp 107-18. Ring, L. & Tigert, D., 2001. viewpoint: the deadline and fall of internet grocery retailers, International Journal of Retail And Distribution Management, 26 (6) pp 2266-73 Sparks, L., 1998. The retail logistic transformation. London: Heinemann. Hugos, M. H., 2006. Essentials of Supply Chain Management. 2nd ed. New York: John Willey and Sons. Langevin, A., and Riopel, D., 2005. Logistics Systems: Design and optimization. London: Springer. Read More