I’ve frequently blogged about online retailing, but I have not mentioned an operations phenomenon that often underpins this business model – ‘dropshipping‘. This is the concept of not holding any retail inventory, but shipping goods to customers directly from their source – sometimes the manufacturer or sometimes a wholesaler. This approach is made possible by digitisation and can significantly speed up delivery times.
Like all business models, operating an online store that relies on dropshipping has some advantages and disadvantages. The pros are:
- significantly reduces start-up costs – no investment in warehousing or inventory
- reduces operating costs – no costs associated with holding, handling and shipping inventory
- possible to offer a wide range of products
- physical location of business is immaterial
- seasonality or a sudden shift in consumer demand has no significant impact on the retailer – it is shifted to suppliers
The cons are:
- requires highly effective supplier selection and digital tools to communicate with them
- reliant on suppliers to hold inventory, thereby increasing risk of poor reliability
- distribution may be complex and expensive if a single customer orders goods the are sourced from three separate suppliers
- tends to be a low margin business.
I’ve blogged about ubiquitisation – the process by which service firms grow and penetrate every geographic niche. But I’ve not discussed “de-ubiquitisation” i.e. chains withdrawing from markets and closing stores. But this is happening on a large scale, largely because of the growth of online retailing.
One of the most high profile examples is the winding up of BHS, which resulted in the closure of 164 stores and the loss of 11,000 jobs. One year on, two-thirds of these stores remained vacant. Other operators are also closing stores in order to remain viable. Marks & Spencer is planning to close 30 stores. Debenhams also has closures planned.
But if this looks serious in the UK, in the USA it is even more drastic – whole shopping malls are being closed, resulting in 89,000 lost jobs in six months. This reflects the fact that the US has five times more retail square footage per person than here in the UK. So many iconic American retail chains are reducing their penetration – Maceys, Sears, JCPenney, and Abercrombie & Fitch. Which is why some experts have dubbed this a ‘retail apocalypse’.
IBM Watson’s video is a great introduction to IoT and analytics in the manufacturing context…
In case you did not know a cobot is a collaborative robot (a word not yet recognised by a spellchecker). Universal Robots was the first company to develop such a machine nearly ten years ago. Their website tells you all about how they developed the concept and what they are doing now, along with some operations insights into how their robots are being used in industry.
Having just blogged about service recovery, this seems like a good topic to look at! Consumer Affairs is a consumer website in the USA that lists product recalls. So far this month they have 18 listed for products ranging from scarves, travel trailers, herbal tea, gas fired furnaces and motorcycles. The full list is here, along with all the recalls going back years. It looks like this May will turn out to be a pretty average month…. Depressing.
In Europe, the European Commission publishes a weekly(!) report – the Rapid Alert System – that provides details of recalls. Their most recent report (here) lists 33 products that have been recalled – motor vehicles, toys, clothing, and electrical equipment of various kinds.
And in the UK? Well it isn’t so easy. The Foods Standards Agency deals with food recalls, the DVLA with vehicle recalls, the Trading Standards with manufactured products, and the government with drug and medical equipment recalls. Helpful.
We define service recovery as “the actions taken in response to a service failure with the aim of restoring customer confidence and satisfaction” (page 200). The service recovery paradox (SRP) is the idea that a ‘successful’ recovery will result in post-failure satisfaction being higher than pre-failure satisfaction i.e. if you want really happy customer fail to deliver the first time round but be really great at recovering! Based on this is is also postulated that ‘recovered customers’ will be more loyal, have higher repurchase intentions, and deliver more positive word-of-mouth about the operator.
It is this paradox that de Matos et al (2007) investigate through their meta-analysis i.e. review of all the previously conducted research into this phenomenon (here). They found 21 research papers that had tested the SRP empirically, which resulted in 24 data sets that could be re-analysed to test their hypotheses. The results of this are summarised here:
- SRP significantly and positively affects satisfaction.
- SRP does not significantly affect repurchase intention, word-of-mouth or corporate image.
- the effect of SRP on satisfaction is different across service sectors (hotel, restaurant, and others)
- the effect of SRP on satisfaction is affected by the specific research design adopted i.e. whether for not the sample was made up of students or non-students, or whether the study was cross-sectional or longitudinal.
Based on this it is probably a really good idea to avoid service failures.
De Matos, C.A. Henrique, J.L. and Rossie, C.A.V. (2007) Service Recovery Paradox: A Meta-Analysis, Journal of Service Research, August
In his tenth annual lecture as Chief Executive of the Royal Society for the Arts, Manufactures and Commerce, Matthew Taylor reflected on the quality of work in the UK. Taylor’s views are of interest because he was appointed by the government last year to lead a review of whether “employment regulation and practices are keeping pace with the changing world of work”. The review team plans to publish its findings in mid June – so more of that isn due course.
In his lecture, Taylor gave a foretaste of what is to to be reported. Some key points are as follows:
- a significant number of workers suffer from stress, which leads to significant numbers leaving the workforce due to disability.
- this stress derives from a number of factors – how work is organised, working conditions, how worker performance is measured, and/or the nature of the contract between employer and employee.
- specific practices that may need to be revised are zero-hours contracts and treating ‘workers’ as self-employed (topics which I have recently blogged about).
The so-called fourth industrial revolution is based on the transformative effect that digitisation is having on how businesses operate. Smart technologies and digital communication means that a large amount of data can be generated about the performance of nearly every part of the operation. Analytics is the tool that deploy algorithms to exploit this data in order to improve performance.
In this article, Baljko discusses the potential analytics has for managing the supply chain. The main thrust of this is that for many operators, the challenge is not devising the algorithms to do the analysis, but having reliable data for them to analyse in the first place.
For all new technologies there is a jargon specific to that context. This may make it difficult to understand how the technology works, what it does, and whether it is performing as expected. So this link takes you to a glossary of terms used in the field of robotics… so you don’t confuse your ball screw with your cartesian axis.
This article on the manufacturer.com website provides insight into IMI Precision Engineering and how it has developed and implemented its lean manufacturing strategy. One of the interesting things about this company is that it manufactures both high volume/low value components, and low volume/high value ones. To make this possible it has embraced lean manufacturing, developed a culture of continuous improvement, and deployed an up-to-the-minute ERP system. This enables it to coordinate the operations across a dozen separate sites, not just in the UK but globally. As a result of this several outcomes have been achieved:
- new product development (NPD) time has been reduced from years to a few months
- layout redesign has released 500m2 of factory floor space so that it can be repurposed
- pace of innovation has increased resulting in several new products being launched in 2017.