Walking In An Innovator's Shoes
What Former Zappos CEO Tony Hsieh Taught Us About The Transformative Power of Logistics
We will leave it for others to discuss the full details of Tony Hsieh’s life and his recent, untimely death. The creative and strategic force behind the success of online shoemaker Zappos and internet advertising pioneer LinkExchange left a legacy of obsessive customer service and breathtaking success.
For our supply chain readers, though, a few aspects of his business approach deserve our attention. Namely:
Supply Chain Is Everything: In the early Zappos days, Hsieh built what common wisdom would dictate was a best-practice driven, efficient supply chain. His team concentrated on building a great website, marketing, scaling operations—all the usual areas you might expect from a young and growing business. Supply chain was just a support function. So, the team outsourcedmuch of its inventory, warehousing, fulfillment and distribution to Zappos’ shoe-manufacturer suppliers.
Yet, that smart solution resulted in customers who were frustrated by lack of availability and selection, along with inconsistent delivery experiences. So, Hsieh pivoted to a completely opposite strategy. He sold his beloved San Francisco loft home to generate cash—and used the proceeds to start holding his own inventory of shoes.
At about the same time, Hsieh made a frenzied trip to Kentucky, where he set up Zappos’ own fulfillment warehouse operation over a matter of just weeks. It was a dramatic reversal, implemented without the planning and diligence logistics professionals might expect.
The thing is, though, it worked. Suddenly, Zappos had a larger selection of immediately-available shoes than its online rivals. And, Zappos could guarantee flawless deliveries and returns every time. Sales skyrocketed.
Which brings us to the second fundamental Tony Hsieh insight:
Supply Chain Isn’t The Business. It’s tempting to argue that bringing operations in-house is always better because it gives you more control. Or conversely, that outsourcing makes more sense due to cost and management savings.
Neither is true, though. Supply chain is a service, and managers can only make good decisions by beginning with first principles: What does the business dictate? What are the critical values our customers recognize, that differentiate us?
Hsieh famously said that Zappos was in the business of delivering happiness. His first online customers were understandably nervous about buying shoes from a computer screen without first having the opportunity to inspect them and try them on.
For Hsieh, it made strategic sense to eliminate that fear. Click now, get the purchase fast, with free overnight shipping—and return it just as as easily for free if you don't like it. Colleagues thought such a liberal policy was nuts. It would cost a fortune in shipping charges. Yet, it turned out that the customers who returned the most shoes also bought the most shoes and yielded the best overall margin.
At its heart, thinking about supply chain transformationally means thinking about your business. What’s critical, how can you maximize that—and then how can you make all the supporting operations as efficient as possible.
At Morgan, we have learned that there’s no one right answer. Finding each client’s unique best approach takes listening to the customer, gathering and measuring critical events, modeling changes and then working across departments and functions to implement and manage changes.
We’re experts at supply chain transformation precisely because we don’t have prescribed answers. But we do have the expertise, tools and solutions that have helped two of Gartner’s “Top 10” global supply chains perform at their best for their enterprises.
If you’re looking for that kind of competitive edge, let’s talk.
Heard On The Dock
“We had to control the entire customer experience. We expanded the warehouse to 77,000 square feet and stopped having manufacturers ship directly to customers. It was a scary time. Drop shipping was 25% of revenue, and we gave it up all at once.”
--Former Zappos CEO Tony Hsieh, from a 2006 interview with Inc., "How I Did It."
While You Were Shipping…
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