The Differences between Online and In-Store Retailing in Australia - Essay Example

Logistics Management Student’s Name: Instructor’s Name: Course Code: Date of Submission: Executive summary Control of any business is successfully achieved through application of strict logistical operations. Logistics is of great importance in managing the flow of products and services production to the consumer point. This makes it very essential in terms of customer satisfaction and it also proves to be an important tool in cost evaluation for many retail businesses. Advancement in technology has resulted to establishment of the online retailing which has been preferred in comparison to in-store retailing. This is due to low prices, wide range of products for selection and convenience. The differences between online and in-store retailing in Australia can be examined through order management and customer service, design and operation of a distribution centre and physical distribution within the country. Design and operation of a distribution centre will enable equity and a fair playing field in Australian retail industry. Table of contents Table of contents 3 Introduction 4 Order management and customer service 6 Design and operation of the Australian distribution centre. 10 Physical distribution within Australia 13 Conclusion 14 References 15 16 Introduction Control of any business is successfully achieved through application of strict logistical operations. Logistics is of great importance in managing the flow of products and services right from those supplying them to the end point users. This makes it very essential in terms of customer satisfaction and it also proves to be an important tool in cost evaluation for many retail businesses. Alignment of logistics is required at each point to ensure that there is a systematic flow of all goods and services as per consumers’ demands. Most of the times, the products and activities from production to the end point employ some systems that are put in place. These systems apply various channels such as purchasing of the products from various producers or the manufacturing of the products and services. These products then follow the next process where they are sold to the end point users according to the customer’s demands. In case there is no any consumers’ specification, this calls for advertisement process for enticing the consumers to buy the product at every channel (Lummus et al. 2003). Retailing is one of the essential phases in any business as it links the producers to the consumers. If the retailers operate in an effective and efficient way, the consumers are entitled to wide range assessment of products that allows adequate selection of the preferred products with consideration of the prices and services that suits the customers. With the main role of selling of goods, the retail industry is entitled to other roles such as the service industry which include introducing to the customers the new products and also assisting them in the process of comparing and assessing the prices of goods and services. They also provide secondary services such as arrangement and provision of the after sale and financial services in matters of warranty (Aldridge & Harrison 2000). Australian retail industry can be said to be one of the largest employment sector in the country as the retail business contains approximately 10% of the employed population in this industry. This is reflected as it is causing an impact that is considerable in Australian economic output with observed greater percentages of the GDP in the previous years. However, the retail industry has shown a slower growth with comparison to other sectors of the Australian economy which has led to a slight decline in the value of the GDP with time. This industry is very diverse and it contains a variety of sectors with various characteristics such as its bulkiness comprising of departmental and specialty stores which includes electrical and electronic products and others (Australian government 2007). Innovation and technology has led to evolution of the business with the main factor being the introduction of doing business using internet. The emergence of the online retail has enabled the development of an advanced method of addressing the needs of the consumer. This is accomplished by satisfying the consumers without them being present physically. The online advertising and marketing has made sure that every potential consumer can assess the products available in the market with consideration on their prices. (Ho 1997). Introduction of online retailing in the business has led to a pressure in terms of the competition which has been greatly experienced by the in-store retailers. The competition pressure is acting differently with respect to the nature of the goods and services provided by the retailers. This impact is felt most on the prices offered by online retailers as compared to the in-store brick and mortar retailers. Online retailing has been preferred due to key factors such as wide range on the choice of the products, lower prices and convenience (Guttman et al. 1998). The purpose of this report is to examine the differences between the online retailing and in-store retailing employed in Australia with an aim of developing a distribution centre to address various issues in the retail industry. Order management and customer service Understanding the needs of the customer is very essential in the success of any business. Online retailing employs internet in buying and selling products between the retailers and consumers. The online retail uses the concept of pull operations which begins with a customized order. Through order customization, the retailer is able to understand what the consumer prefers even before making any decision on purchasing the goods. After understanding the needs of the consumer, the retailer moves to the next step of buying the goods according to the specifications of the consumers and making the delivery plans for the products. The strategy applied in this concept promotes the goods and services through the internet making it faster and easier for the retailers to get to their customers. However, in-store retailing employs the push concept where the strategy acts in a way that it increases the burden for the in-store retailers. This results as more goods are pushed in bulk to the retailers to make advertisement to consumers requiring more physical spaces for storing these products. This in turn will lead to more expenses on storage in order to offer a wide variety of goods and services to the consumers (Lummus et al. 2003). Online retail is very effective in terms of the fulfillment of the order as compared to the in-store retailing. This is because the online retail makes arrangements on the products ordered by consumers according to their specifications at the right place and time and also meeting the customer services in relation to the ordered products. This indicates that the goods and products contained in online retail are provided on customers’ demand or request. However, in store retailers have a great task of obtaining a variety of goods physically in order to allow the customers to make their preferred choices. In this case, the there will be need for more shops for display which is accompanied by increased number of employees to cater for the needs of the customers. Online retailing order processing seems efficient and accurate due to a short time process of ordering, receiving, check of customer’s credit standing, updating of inventory records and issuance of billing and shipment through the internet. This leads to low costs with maximum satisfaction of the customer. On the other hand, physical involvement with the customer in the in-store retailing in performing these transactions will require more time and expenses (Carter & Ellram 1998). A logistic system in any business is aimed at maximizing the profits of the company but not necessarily increasing the sales. Due to incurring of more expenses in in-store retailing, they tend to sell their products at higher prices in comparison to the online retailers. The differences in these prices can be attributed to inventory, location, staffing and terms of rent. Online retailing does not have to stock their goods because they provide them on the basis of the customer specification calling for a direct shipment of goods to the consumers from the retailers. Through this process, the method does not risk having products that are outdated and in addition, their capital cannot be held up in the inventory. However, capital on in-store retailing is held up on hand delivery with the retailers more risks as the retailers sell their outdated goods in the stores at lower prices. By use of internet, online retailing location can be said to be worldwide with conduction of its operation using a single room only which leads to low costs of operation. There are no boundaries in online retailing as there is a good traffic for both local and international customers with employment of very little expenses. This makes them to sell their products at lower prices. This is different in in-store retailing where more warehouses and stores are required to keep and display their products as they are not based on customers, specification. This is reflected through increased costs of operation. Staffing is made easier in online retailing as a very small number of team is required for managing the internet through maintaining and updating the site while on the other hand, in-store retailing is in need of a larger number of staff in order serve customers through various departments and stores such as sales personnel, security, handlers of inventory and managers. This leads to higher prices on their products (Hoffman et al. 1995). However, as the online retailing offers low prices on their products, these prices can be elevated if there is no efficiency in the management of freight charges. These prices may end up being more in online retailing as compared to in-store retailing as evidenced in Grays online Company. Customers are complaining on the freight charges on the goods bought from this company. A customer in this case succeeded bargaining a product to a price that was $ 20 cheaper than the existing in-store retailing. But on receiving the invoice on delivery of this product, the prices had shot to $ 90 in addition to the freight charges. Another customer on the same company bought a product costing $ 500. The customer expected that on the basis of the profit, the company would charge approximately $ 60 for freight delivery but to the customers surprise, the charges on freight added up to $ 279 which was far much more as compared to in-store retailing (phpBB Group 2002). The pressure on competition has led to lowering of prices for in-store retailing in relation to online retailing. This has been done with an aim of maintaining the customers who are more attracted to online retailing. This affects the in-store retailers as they make very large sales of their products but with a continued dropping of prices. This has been evidenced in a number of electronics shops such as the Harvey Norman where the company chairman states that the company is undergoing an extremely difficult condition as an in-store retailer. This is due to selling of a large number of the electronics with increased fall in their prices leading to a very little turnover (News.com.au 2011). In the above case, the in-store retailing logistic system in this electronic company tends to maximize customer services and in addition, the costs of distribution are increasing. This means that the logistics goals in the in-store retailing are not achieved as the company has maximized its sales with decreasing profits. On the other hand, an online company providing the same electronic products will tend to reduce its expenditures making it more comfortable in selling the same products to the customers at lower prices with a corresponding increase in profits. Through this process, the online retailers can weigh the benefits of providing higher levels in customers services versus the costs incurred. In this case, an online retailing will be able to achieve the logistic system goal by maximizing their services to the consumers with increasing distribution costs and a corresponding increase in their profits (Alba et al. 1997). Design and operation of the Australian distribution centre. The design and operation logistics will put into consideration the movement of the goods and services in various processes such as procurement, receivership, inward transportation, warehousing or storage, stock control, order picking, communication and physical distribution. The logistics management the Australian distribution centre will also consider the Australian customs, quarantine clearance and inspection. This will ensure that goods and services from various regions out of the country are collected at the same centre before distribution within Australia. Bodies such as border protection and customs services will be responsible for charges on the collection of taxes, custom and all other duties that are imposed on the goods which imported as they pass through the ports into the Australian distribution centre. Quarantine clearance and inspection will also be in charge of any product into passing through Australian border to the distribution centre on the grounds of maintaining the consumers’ health and safety (Taniguchi et al. 2003). Buying of goods from outside the country is done online where the goods are shipped into the distribution centre then delivery to the client is done. On the other hand, the goods are shipped into the distribution centre and then they are transported to the stores or warehouses for in-store retailing. By use of the online retailing and buying of goods in bulk, the production cost is reduced between the producer and the consumer. This will lead to lower prices will adhering to all the regulation of the Australian government which ensures that the government is able to attain its economic goal with corresponding satisfaction of the consumers and retailers. Through the design of the distribution centre, there will be an observed equity and a balanced business playing field among all the retailers (Cooper, Lambert & Pagh 1997). The stages involved in online obtaining of goods from outside the country to the distribution centre will involve outsourcing, selection of the supplier, evaluation and procurement. China is the main exporter of the retail goods to Australia. The markets in china ensure that the sourcing process works best in the support of the retailer. This is done in such a way that the online retail business between the two regions makes the retailers to come back for more goods. A successful sourcing calls for a selection of the supplier of goods to Australia for distribution base on various activities such as the previous duties and works of the supplier. The evaluation of this supplier will be based on the effectiveness and reliability in transferring the goods from outside country to the Australian distribution centre. The procurement of the goods is performed in bulk from the favorite suppliers in exporting countries to the distribution centre in Australia. This process is conducted online to connect with the major activities regarded to as upstream activities with Australia. The inward transport or the traffic will consist of transferring of the goods from the suppliers that are abroad to the distribution centre in Australia. The employment of logistics in the process of transferring goods from abroad to the distribution centre makes sure that the there is adherence of the efficient operations in the design of route, transportation and legal and safety operations and also to ensure that the deliveries are timely and are of low cost. The receiving in the distribution centre will ensure that the order of the delivered materials matches and also there is acknowledged receipt and unloading of the delivery facilities (Anderson et al. 1997). After clearance of the products at the Australian ports, the distribution centre will have stores and warehouses to store the goods before directly transferring them to the consumers in case of online retailing and before transferring them to the store and display shops for in-store retailing. For online retailing, warehouses will enable the retailers to check on the condition and packaging of the goods according to the specifications of the customers. However, for in-store retailing, the goods will require redistribution to the display stores and shops in different regions to allow for consumer selection of the products. The online stock control will put into consideration the order size and timing and the customer services to ensure the accomplishment of the customers’ specifications. However, stock control in in-store retailing will involve consideration of the materials that are available in the firm’s store in addition to the overall investment of the organization on form of the goods that are present in their stores (Cohen 1995). The picking of the order is done to aid in removing of the products from the warehouses in the distribution centre. In online retailing the goods are identified and checked according to the customer’s specification then move to the departure region for delivery. On the other hand, goods for in-store retailing involve removal of the goods from the distribution centre and supplying them in bulk to the stores and display shops to allow for the customers’ selection. In in-store retailing, the logistic activities seems to be spread as it involves the movement of goods from the warehouses to the firm’s stores then to the places designed for the display. This may also incorporate the involvement of the third parties and various alternatives. The outward delivery or transport will entail delivering the product selection by the customer on the shop display to the preferred destination. Online outward transport involves transporting the product that the customer had specified online to required destination. The completion of the logistics is achieved when the goods are delivered to the customer at the right time and place. However, logistics is not complete if the goods are returned back to the consumer due to lack of conformity in the agreed specification and also time (Lummus et al. 2003). Physical distribution within Australia The activities involved in physical distribution are meant for delivering goods from the retailers to the customers and includes processes such as outward transport. This process works in collaboration with marketing and is very essential in connecting with the downstream activities. Physical distribution in both online and in-store retailing is important as the firms needs to make decision on the most efficient and effective way of storing, handling and movement of the products. This ensures that there is availability of goods and services at the right place time and mixture. Observation on the logistics effectiveness will impact the satisfaction of the costs of the company and also the consumer satisfaction. The physical distribution entails use of facilities or the machinery for the storage and movement of products. It involves planning, scheming and implementing the flow of goods and controlling of the related information from the origin of the goods to the user point by ensuring that the requests of the customers are met with generation of profit. It simply involves getting the right goods in the right place and time. Logistic management entails controlling of the above operations with an aim of obtaining an efficient and effective process of physical distribution. Use of the existing channels in Australia will make the physical distribution possible. These current channels are required for clearing and inspection of the goods on passing into Australian from abroad (Taniguchi et al. 2003). The movement of the product to the consumers from the retailers in Australia is addressed by market logistics which is also referred to as outward logistics or outbound distribution. In-store retailing involves movement of products within a firm by transporting the goods from the internal suppliers to the internal customers. It systematically follows a string of stores from the origin of the product to the consumers developing a supply chain. Upstream activities are responsible for movement of the products towards the stores while the downstream activities transfer the products outwards from the stores to the consumers. In-store retailing obtains the product in large volumes from the supplier tiers then distributes then upon selection, it is distributed to the tiers of end point users (Childerley 1980). Application of logistics management has an objective of achieving various processes on physical distribution. One of the most essential purposes is the customer satisfaction which acts a marketing strategy pillar while the distribution serves as an important tool in customer service. Logistics also serves as the main element of in cost analysis in majority of the retail businesses. Physical distribution efficiency improvement is results to a significant saving on cost from both the consumers and retailers. Finally, innovations and advancement of technology such a use of online retailing has resulted to creation of advanced systems for inventory control, order processing, transportation routing and scheduling (Bharat 1999). Conclusion Logistics is very important in the systematic management of products right from the origin of the product to the consumer point as it is very essential in the satisfaction of the customer and it also serves as a major tool in analysis of cost in retail industry. Retailing serves an important purpose in business as it links the producers to the suppliers. With time, there have been technological advances in the retail industry which has led to online retailing. The popularity of online retailing has been attributed to wide range of products, low prices and convenience. As everyone is focusing on saving of money and time, online retailing has been preferred due to two factors which are reduction of time during shopping and provision of products and services at prices that are lower in comparison to in-store retailing. This has led to pressure in competition with more effects on in-store retailing which is depicted by low profits due to extra expenditures as compared to online retailing. However, online retailing also contains some negative effects to the consumers such as product, disclosure and security risks. In order to maintain equity and a fair playing ground in retail industry and to promote economy in Australia, there is a need for a distribution centre which will handle all the goods and services passing through Australia ports. 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Viewed on 5th January, 2012 from: http://www.news.com.au/business/harvey-norman-expects-difficult-christmas/story-e6frfm1i-1226209797030 phpBB Group 2002, Grays Online freight charges, Viewed on 5th January, 2012 from: http://www.notgoodenough.org/viewtopic.php?t=37687 Taniguchi, E, Thompson, RG and Yamada, T 2003, ‘Visions for city logistics’, Proceedings 3rd International Conference on City Logistics, Institute for City Logistics, pp. 3-17. Read More