MINISTRY OF TRANSPORT

VIETNAM AVIATION ACADEMY

Group Presentation
CASE STUDY
ZAPPOS AND THE PIONEERING RETURN POLICY
Lecturer: Assoc. Prof. Dr. Adam Voak
Team: 1

Đặng Hoàng Anh Thư 2250000135

Nguyễn Thị Kiều Ngân 2250000127
Nguyễn Cao Kỳ Uyên 2250000125
Nguyễn Hoàng Thanh Hồng 2250000109
Nguyễn Thị Ngọc Bình 2250000097

HO CHI MINH CITY – JANUARY/2024

 1. HOW DOES ZAPPOS’CUSTOMER-FRIENDLY RETURN POLICY IMPACT
THE EFFICIENCY AND EFFECTIVENESS OF ITS LOGISTICS
OPERATIONS?
This question requires an exploration of the logistical aspects influenced by the return
policy. Look into the order processing time, warehouse management, transportation
logistics, and other operational components. Consider how the return policy either enhances
or challenges these logistics operations

1.1. THE LOGISTICAL ASPECTS INFLUENCED BY THE RETURN POLICY?

- The order processing time:

+ Returns to Zappos normally take 5-10 business days for the package to arrive back with
Zappos and for it to be inspected and processed back into their system. Once this process is
complete a refund will be issued to your credit card and this can take a further few days
depending on your credit card company. In order to obtain a full refund, Zappos will need to be
happy with the state of the goods you have returned.

+ Return shipping from anywhere in the United States is always FREE. If you are not 100%
satisfied with your purchase from Zappos, you can return your eligible item(s) for a full refund
within 365 days of purchase. Zappos’s customer-service hotline appears on the top of every
Zappos webpage, proclaiming 24/7 customer service via telephone

- Warehouse management:

+ Zappos’ warehouse is completely disorganized. After experimenting with various methods of

classifying shoes by make, model, or season, Zappos abandoned organizational schemes for
UPC logging. Once a box of shoes enters the warehouse, its UPC label is scanned and its
location is logged. As far as inventory control systems go, it works in a warehouse situation and
might in closed stacks, but is not recommended for academic libraries.

+ After Zappos fired its logistics company and started to build its own system, cheekily called
WHISKY (WareHouse Inventory System in KentuckY), sales exploded— from $1.6 million in
2000 to $8.6 million the next year and $32 million the following year. With this system Zappos
could do what it wanted for its customers—including surprising some with an e-mail telling
them it could ship their shoes in two days and, later, overnight rather than in a week.

- Transportation logistics

+ Increased transportation costs: Free return shipping adds significant costs, especially for bulky
or heavy items.
+ Delivery time impacts: Processing returns adds to the overall delivery time for exchanged or
replacement items, potentially impacting customer satisfaction.

+ While such policies aid consumers and potentially increase sales, they impose heavy costs on
retailers as returned products need to be inspected, cleaned, and potentially re-shelved – in some
cases, retailers end up having to discard returned products since the processes involved in re-
shelving the product are too costly. Thus, retailers face the daunting task of designing return
policies to balance the risk that consumers bear and the costs incurred from returns.

+ Free return policies are very common among retailers. in the case of online apparel retailers,
where consumer uncertainty about the physical fit (size) of the product is extremely hard to
resolve prior to receiving the product and trying it on

1.2. HOW THE RETURN POLICY EITHER ENHANCES OR CHALLENGES THESE

LOGISTICS OPERATIONS?

- Enhanced Order Processing Time

+ Demand forecasting: Analyze return data and customer trends to predict return volumes for
certain products and seasons. This allows for pre-allocation of inventory and staffing during
peak return periods, ensuring smooth processing of new orders even with an influx of returns.

+ Automated systems: Implement software that automatically tick damaged or defective items
during return processing. This can expedite refunds or replacements for customers while
allowing for quicker removal of flawed items from inventory, preventing them from slowing
down subsequent order fulfillment
- Enhanced Warehouse Management:

+ Data-driven inventory management: Analyze return data to identify slow-moving or

frequently returned items. Optimize inventory levels based on these insights, minimizing storage
costs and improving space utilization for popular items.

- Enhanced Transportation Logistics:

+ Reverse logistics partnership: Partner with a reliable logistics provider specializing in reverse
logistics to optimize return shipping routes and rates. This can involve bulk shipping
arrangements for returned items, reducing transportation costs and minimizing environmental
impact.
+ Return hubs vs. main warehouse: Strategically locate regional return hubs closer to customer
concentrations. This reduces shipping distances for returned items, speeding up their processing
and restocking in local markets for faster delivery to new customers.

+ Predictive analytics for transportation: Analyze historical return data and shipping patterns to
predict peak return periods and optimize transportation resources accordingly. This can involve
pre-positioning empty containers or trucks at return hubs during anticipated high volumes,
ensuring smooth handling and swift processing of return shipments.

2. WHAT SPECIFIC LOGISTICAL CHALLENGES AND OPPORTUNITIES

ARISE FROM ZAPPOS' COMMITMENT TO A 365-DAY RETURN POLICY,
AND HOW HAS THE COMPANY ADDRESSED THESE WITHIN ITS
OPERATIONS?

This question prompts an examination of the practical challenges that arise froma lengthy
return window and how zappos has adapted its logistics operations to accommodate these
challenges. Investigate how the company has optimized its processes to maintain operational
efficiency despite the extended return policy.

Zappos' lengthy return window can be a double-edged sword. While it can help to improve
customer satisfaction and build brand loyalty, it can also lead to a number of practical
challenges. By carefully managing these challenges, Zappos can continue to reap the benefits of
their generous return policy.

2.1. OPPORTUNITIES:

- Customer satisfaction:
+ Increased Confidence and Trust: Knowing they have a full year to return any unwanted or
unsuitable items, customers feel more confident and willing to make larger purchases and
experiment with new styles.

+ Improved Customer Relationships: Positive interactions during returns, if handled

efficiently and professionally, can further strengthen customer relationships and turn satisfied
customers into loyal advocates.
- Brand loyalty:
+ Word-of-mouth marketing: Satisfied customers who appreciate the flexibility and ease of
returns are more likely to spread positive word-of-mouth, attracting new customers and
solidifying brand loyalty among existing ones.
 + Value: The generous return policy creates a perception of value and customer-centricity.
It makes Zappos stand out from competitors with shorter return windows and reinforces their
reputation for exceptional customer service.

2.2. CHALLENGES
- Increased Return Volume => Logistics Complexity: Managing diverse items from
various locations involves intricate logistics. Transportation, sorting, inspection,
restocking, and potential refurbishment/disposal become complex and resource-intensive
tasks.

- Potential for Abuse:

+ Misuse of Policy: Some customers might exploit the lengthy window, intentionally
returning used, damaged, or unwanted items. This incurs financial losses for Zappos through
disposal, discounted sales, or potential fraud.

+ Increased Fraud Risk: Longer windows amplify the risk of fraudulent returns, where
customers return items they never bought or bought elsewhere. Detecting and preventing
such occurrences can be challenging, leading to further financial losses.

- Inventory Management Issues:

+ Increased Complexity: Managing new and returned items simultaneously complicates

inventory management. Accurate inventory levels, preventing stockouts, and tracking returned
item statuses require robust systems and efficient processes.

2.3. HOW THE COMPANY HAS OPTIMIZED ITS PROCESSES TO MAINTAIN

OPERATIONAL EFFICIENCY DESPITE THE EXTENDED RETURN POLICY?

- Workplace environment:
+ Clear Core Values: Zappos prioritizes its core values by placing them at the heart of their
company culture and ensuring every employee aligns with them. This is achieved through
thorough candidate screening and the "quit offer" during training.

+ Caring and Collaborative Environment: For those who stay, Zappos fosters a culture of
care and friendship, focusing on respect and appreciation for employees. Leaders play a crucial
role in creating this welcoming atmosphere.

- Build a close relationship with a reliable partner: UPS

 + UPS helps Zappos manage returns with seven-day forecasts of incoming volumes through
its free Quantum View Manage software,

- Think of shipping as a marketing cost.

+ Zappos considers its overnight shipping and generous one-year, free-return shipping
policy a key part of its marketing plan to build customer loyalty.

- Open a warehouse near UPS Worldport - the carrier's global air-freight hub
+ Open a warehouse near your shipper's hub for faster deliveries at lower costs. Zappos'
proximity to UPS Worldport allows next-day delivery until 4 PM Eastern and quicker return
processing, boosting customer satisfaction.

- Deliver fast, return slow

+ Zappos also cuts shipping costs and improves its on-time delivery by encouraging customers
to use UPS MyChoice, This free scheduling tool allows shoppers to arrange deliveries for when
they'll be home or divert them to their offices. That helps avoid the hassle and expense of
multiple delivery attempts.

However, when it come to the customer services like call center, Zappos' decision to keep
its call center in-house rather than outsourcing it due to some reasons:

First, they considered outsourcing it to India or the Philippines but after they got the whole sales
pitch and listened in on sample calls, they realized:

+ Lack of cultural understanding: Outsourced reps might not understand the nuances of
American culture and be unable to provide good customer service.

+ Previous bad experiences: Zappos had bad experiences with outsourcing in the past,
particularly with warehousing and shipping.

+ Core competency: Customer service is Zappos' core competency, and it shouldn't be

outsourced

3. IN WHAT WAYS DOES ZAPPOS' REVERSE LOGISTICS STRATEGY

CONTRIBUTE TO OR DETRACT FROM THE OVERALL SUPPLY CHAIN
EFFICIENCY AND HOW HAS THE COMPANY INTEGRATED REVERSE
LOGISTICS INTO ITS BROADER LOGISTICS OPERATIONS?
This question focuses on the integration of reverse logistics into zappos' supplychain.explore
how the company manages returned items,the impact on supply chain flow, and any adjustments
made to maintain overall efficiency. Corsider how zappos has strategically woven reverse
logistics into its logistical framework

3.1. HOW THE COMPANY MANAGES RETURNED ITEMS

Returned items are first sorted by category (new, used, damaged)
If them in a good condition
- Restock: That means they put them back to the shelf in the inventory
- Resold: They will repackaged and labeled for resales
 To minizing the waste
And if items returned not in a good condition (minor wear, tear can be cleaned, not affect the
quality of the whole product). The company will resell as refurbished and donate to the charity
organizations, contributing to social responsibility.

3.2. THE IMPACT ON SUPPLY CHAIN FLOW

Zappos' generous return policy and efficient reverse logistics system have a significant impact
on their supply chain flow, creating both complexities and opportunities.

- Negative impacts:
Increased flow in specific stages:

+ Return Center: The volume of returned items creates a high flow in the return center, requiring
efficient processing systems and adequate capacity to handle sorting, inspection, and
disposition.

+ Refurbishment: Depending on the condition and type of returned items, some may need
disposal or refurbishment. This adds additional flow to these stages within the supply chain.
Beacause all returned products will be resold and restocked or donated, The reverse logistics
system adds complexity to the overall supply chain flow, requiring additional resources and
management compared to a traditional system.

- Positive impacts:

+ Customer satisfaction: by offering free shipping on purchases and returns, which makes
customers happy about ordering multiple sizes to get a perfectfitting product. Its 365-day return
policy also creates complete customer satisfaction because customers appreciate the company’s
longterm commitment to them

+ Operational efficiency: Zappos streamlined the return process,making it simple and cost-
effective. They introduced a prepaid return shipping labei with everycrder,eliminating the
financial burden on customers for returning items.
+ Environmental benefits: Reselling or refurbishing returned items can minimize waste and
environmental impact compared to discarding them. This aligns with sustainability goals and
adds to the positive impact of the reverse logistics system.

3.3. HOW ZAPPOS HAS STRATEGICALLY WOVEN REVERSE LOGISTICS INTO

ITS LOGISTICAL FRAMEWORK?

Zappos efficiently combined its generous return policy with its broader logistics operations that
fosters customer satisfaction, optimizes inventory management, and promotes sustainability.

- Warehouse Integration:
+ Zappos operates multiple warehouses across the United States, mainly located near
transportation hubs. This allows for faster delivery times to different parts of the country.
And returned items are quickly sorted, inspected, and categorized for further processing.

- Automated Systems:

+ Zappos utilizes advanced systems to automate parts of the return process, including scanning,
routing, and data management. This streamlines workflows, reduces errors, and improves
overall efficiency.

+ But getting an order processed, packaged, shipped, and onto your doorstep in less than 24
hours is not an easy task . It takes the right people, careful planning, and a fast, optimized order
fulfillment system like the one material handling integrator Intelligrated.

+ Furthermore, Zappos also used Warehouse Management System (WMS). The WMS
optimizes picking and packing routes within each warehouse, ensuring efficient movement of
goods and timely order fulfillment.

- Customer-Centric Approach:

+ Transparency and Communication: Zappos keeps customers informed throughout the return
process, providing tracking updates and estimated processing times. This builds trust and
reduces customer frustration.

+ Focus on Customer Satisfaction: Ultimately, Zappos views returns as an opportunity to

resolve customer concerns and retain their loyalty. They aim to make the return process as
frictionless as possible, ensuring customer satisfaction even when items are returned.
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returns

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