7 Service Supply Chain Lessons from Zappos

The service has become more important even in the manufacturing sector. Here you will learn how Zappos streamlines service that wows using service supply chain.

Service Supply Chain Case Study

The service in the supply chain has recently emerged as a new research area. In general, it focuses on supply chain management of non-manufacturing companies such as those in the logistics and distribution, consulting, and hospitality industries.

One of the most notable case studies is from a company called Zappos.com. Founded in 1999, it is an online retailer selling shoes via a drop-shipping business model. In early 2004, they noticed that customer service was the biggest problem. So they had to adapt in order to survive in the bad economy and international business issues. Of course, they stumbled and fell and learn from mistakes. Nevertheless, they hit a very important milestone of reaching $1 billion in gross sales in 2008.

To determine how they did to improve the service, we study many materials and carefully review and present the information in the infographic below,

1. Make service a priority
This may sound a bit typical because every quality system project like six sigma and lean manufacturing says that the internal customer is also important. However, Zappos brings service priority to the next level. Below is the exact wording from Zappos's team,

"At Zappos, it all begins with the Golden Rule: Treat others as you’d like to be treated. When vendors fly to visit our offices in Las Vegas, they are greeted at the airport by one of our Zappos shuttles. When they arrive at our offices, their buyer welcomes them as we take their sample bags off their hands so we can deliver them to the meeting room. If it’s their first time visiting our office, we give them a tour. We offer them drinks and snacks, basically anything we can do to make them feel comfortable. This is all far from industry standard, but if we were in their position, I’m sure we wouldn’t mind being treated this way"

It's not about having a nice policy, they actually do it, service training without training.

2. Find the right people and empower them
They believe that the call center is the core competency so they don't outsource this operation. In order to excel in these operations, they try to find people with a positive attitude. Below is the opinion of one of the top executives,

"I attended a conference where someone in the audience asked Starbucks‟ chairman/CEO Howard Schultz why everyone at Starbucks smiled and he said, "We only hire people that smile." We try to do the same thing at Zappos. We only hire happy people and we try to keep them happy. Our philosophy is that you can't have happy customers without having happy employees and you can't have happy employees without having a company where people are inspired by the culture."

3. Measure satisfaction, not productivity
Zappos doesn't measure call times, doesn’t force employees to upsell, and doesn't use scripts. And they encourage a long phone conversations with customers if it's useful. If they don't measure call times, how do they handle big amount of calls every day without letting customers wait too long?

They create an environment where service staffs want to stay. The industry standard of staff turnover can be as high as 300% but for them, it's just mere below 5%. People stay due to many reasons,

- Pay a bit higher than the others

- Promotion happens every 6 months instead of one year or more. So people see how well they are doing.

- Promotion is determined by the number of new skills each staff acquires (the company provides training). So staffs are in control of their own career advancement

And when people stay longer, it's like the well-oiled machines without downtime in contrary to the faster but unreliable machines like those of others.

4. See each contact as the business opportunity
Even though people buy products online, they often call service staff. Then, Zappos analyzes the phone calls extensively to determine the customer's changing needs and trends to improve the merchandising and procurement.

5. Promise less, deliver more
The standard delivery condition is 4-5 days by ground service. But they sometimes upgrade the delivery to the next day and run the operations on a 24/7 basis (when you promise next-day delivery, it will be pretty tough to surpass the customer's expectations, do you know what I mean!)

6. Partner with 3PL
The reason Zappos can improve the delivery speed is to partner with 3PL. They have a warehouse very close to 3PL's hub. 3PL will automatically upgrade the service from "ground" to "next day delivery" if the cargo volume of next day delivery on a particular day is low (in order to drive the economy of scale). This helps to bring the service to the next level.

7. Ask vendors for help
Since Zappos treats vendors very nicely (no tough negotiations), asking for help is not a big deal. Vendors can access Zappos's inventory control level online and may ask buyers to buy more or suggest style changes.

- Marks, M., Lee, H., & Hoyt, D. (2011). Zappos. com: Developing a supply chain to deliver WOW.

- Hsieh, T. (2010). Zappos’s CEO on Going to Extremes for Customers. Harvard business review, 88(7), 41-45.

- Hsieh, T. (2010). Delivering happiness: A path to profits, passion, and purpose. Hachette UK.

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Last review and update: July 5, 2022
About the Author and Editor:
Ben Benjabutr is the author and editor of Supply Chain Opz. He holds an M.Sc. in Logistics Management with 10+ years of experience. You can contact him via e-mail or Twitter.