Garden.Com Case Study

Supply Chain Management Individual assignment 2012/ 12/ 11 Garden.

com At the End of the Runway Linda Schadler Student ID: 1202010203 1. Garden. com’s supply chain Garden. com’s business model is based upon its virtual supply chain which provides customers with a convenient location for one-stop shopping. Garden.

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com’s supply chain includes four different actors: Suppliers, retailer (Garden. com itself), end-customers and Fedex. The company fulfils the function of a facilitator that acts as a bridge connecting suppliers and end-customers.

With regard to the design of Garden. com’s supply chain, two different kinds of structures can be distinguished.

These will be presented in the following. The structure depends on the respective product attributes, the volume and the relationship with the supplier. When it comes to garden supplies and further related products, Garden. com has opted for two different approaches: In the first case, the product comes from the supplier and passes Garden. com’s distribution centre where it is kept as inventory until it finally reaches the customer. However, Garden.

om only maintains a nominal inventory for a few products like specialty gifts, promotional merchandise and some safety stock for high-volume products. In the second case, the supplier ships the product directly to the customer. Garden. com acts as intermediary, but the product never passes its warehouse and the company never holds its possession. Garden. com merely transfers the customer order to the supplier.

This is called “drop shipping”. Highly perishable goods such as live plants, flowers and bulbs are usually directly shipped by the supplier to the end-costumer.

All in all, drop shipping predominates. Thus, in most cases, Garden. com’s involvement is limited on being a consolidator of information whereby its own physical involvement is minimised.

Information flow between Garden. com and its suppliers is via extranet. The physical transportation of the goods is mainly carried out by FedEx. (See appendix 1 for a diagram of the supply chain structure. ) 2. Causes for Garden.

com’s failure There are multiple interrelated reasons that made Garden. com’s “rosy” predictions turn into “thorns”.

Garden. com’s failures to address the numerous challenges they face – namely the high fragmentation of the industry’s supply base, the far-scattered suppliers and perishability of live plants from greenhouses- have accumulated and eventually led to their final failure. First of all, the premium market niche Garden. com has positioned itself in is not as large as expected.

Thus, Garden. com’s target market remains quite limited. A further severe problem Garden. com faces is inefficient inventory management.

Although the company has tried to introduce “Trellis” – a shipping module which enables real-time update of inventory- many suppliers have refused to adopt the model. The suppliers’ unwillingness to invest in 1 integrating Trellis has several reasons: Some already use different systems, others are so small that they have no real inventory management at all.

The lack of a consistent integrated inventory management system often results in confusion about inventory: For instance, backordering represents a major problem. It even happens frequently that Garden. om still continues to pass customer orders even when suppliers already have run out of stock. Moreover, numerous problems with suppliers represent a huge threat: First, they are geographically scattered, which makes it very hard to bundle one offer with various products to ship them together. Thus, economies of scale cannot be exploited and shipping costs increase. As most of the suppliers are small family businesses, they perceive Garden.

com simply as a further distribution channel and are quite indifferent toward the company. Therefore, the majority of suppliers are reluctant to make significant investments in the relationship.

Apart from that, Garden. com has made severe mistakes when it comes to communication with their suppliers. The following faux pas illustrates this: Owing to the marketing department’s ignorance, Garden.

com made a change on their website without informing the responsible supplier, Pleasant View. Now, customers could buy products individually but Pleasant View still sold them in bundles. Consequently, “free” products were sent to costumers and for the rest, nothing was left. The result was devastating: A huge loss of profits, customer dissatisfaction and strained relationships with Pleasant View.

Furthermore, the company’s performance suffers from the inability to cope adequately with the challenge that perishable goods represent: Inaccurate forecasts have a huge negative impact. If the forecasted demand is too high, the perishable plants become unsellable.

In the case of too low forecasts, large shortages occur. This causes immense over- and understocking costs. Making things worse, due to the susceptibility of live plants to widespread diseases, inventory is often wiped out. One of the most pressing problems represents the cost structure: Due to its upscale business model, Garden. om incurs exorbitant costs.

Particularly, customer acquisition and product return process are very expensive which puts further pressure on Garden. com. A look at the income statement reveals the magnitude of Garden. com’s inability to manage its spending, especially in the field of customer acquisition: The expenses for marketing and sales exceed the total revenues by far. For instance, in the year 2000, the spending for marketing and sales amounted to $26,654, whereas the total revenues only add up to $15,502 (See exhibit 2 in the case for further information).

3. Comparison with Amazon

Amazon went online in the year 1995. In the beginning, the e-commerce company focused on selling books. However, soon diversification took place: Nowadays, the world’s largest “e-tailer” offers not only books, but also DVDs, CDs, MP3 downloads as well as electronics, apparel, furniture, food, toys 2 and even jewellery.

Since April 2000, their extremely broad product line even includes lawn and garden items. Let us draw a comparison to Garden. com: The most obvious similarity between the two companies is that they are both pure “e-tailers”. None of them owns brick and mortar stores.

However, although both sell L&G items, their targeted markets differ fundamentally.

Amazon’s product range seems almost endless. Thus, their targeted market is universal. Amazon is not hindered by demographic boundaries because it sells almost everything. Garden. com, on the other hand, has positioned itself as a niche player: Wealthy baby boomers represent their target audience.

The service output demands their target customers value highly are spatial convenience, personalised service and excellent quality. Hence, the typical Garden. com customer is a serious gardener which is willing to pay a premium for high quality products.

Amazon. com has basically three different sales channels and fulfils accordingly three functions in the supply chain: Seller, intermediary for third-party-sellers and full-service e-commerce provider. Consequently, Amazon’s supply chain structure on the one hand includes the “regular” channel where products pass Amazon’s distribution centres.

This is its first function. On the other hand, Amazon has also adopted the drop shipping model, where it fulfils its second function: Amazon represents a marketplace where independent third-party sellers can offer their products.

These products are shipped directly to the end-costumers and do therefore not pass Amazon’s warehouses. (See appendix 2 for a diagram of the supply chain structure. ) After an order has been submitted, Amazon decides whether the internal distribution centre or the drop shipper is responsible for shipping the product.

Although this sounds very similar to Garden. com’s structure, there are still huge differences. Amazon’s supply chain is much more elaborated: The company owns several highly automated warehousing and fulfilment centres.

Each distribution centre handles the full array of high-volume items in order to be able to deal better with multi-item orders. However, not all of the products Amazon offers are held as inventory in Amazon’ distribution centres, only the most popular ones.

Moreover, Amazon has integrated all drop shippers in its software and thus established real-time links whereas Garden. com has failed to make Trellis a standard. The majority of Garden. com’s suppliers still transfers information manually. As already indicated, a further difference is that Amazon not only acts as a seller and intermediary, but also occupies one further position.

In its third function, Amazon acts as a full-service e-commerce provider. According to this model, third party firms can use Amazon’s fulfilment network. Hence, Amazon provides them with the technical and operational infrastructure to carry out the order. Amazon’s task consists of sourcing the product from the distribution centre and of delivering it to the final customer. However, the respective company still maintains its own brand and website. 3 4.

Comparison with 1-800-FLOWERS. COM 1-800-FLOWERS. COM is a floral and gift retailer which was founded in the year 1976 and is currently headquartered in Carle Place, New York.

Their product range includes fresh-cut flowers, plants, gift baskets and floral arrangements, as well as gourmet foods, gift baskets and garden accessories. Although there are some overlaps with Amazon concerning products offered, 1-800FLOWERS. COM’s target market is different.

Instead of serving a universal target audience like Amazon does, 1-800-FLOWERS. COM addresses a narrower audience: Mainly people who want to bestow others, for example for special occasions like birthdays or anniversaries. When it comes to supply chain structure, further differences become obvious.

Although 1-800FLOWERS. COM is also an online retailer, it follows the concept of “Click and mortar”: This means that customers order online but come to a brick and mortar store to pick up the product.

The internet mainly serves to attract customers and finally receive orders. The order fulfilment is handled by conventional local florists. They receive the flowers from upstream members of the supply chain such as wholesalers and importers which constitute several distribution layers. (See appendix 3 for the supply chain structure diagram. ) In contrast to Amazon, 1-800-FLOWERS.

COM is connected to its suppliers by an intermediary wire service. 5. Suggestions to Garden. com Corporate-level strategy Apart from general operational issues that will be addressed later, Garden. com faces some options to avoid the looming failure when it comes to their corporate-level strategy: One alternative could be to reconsider its target market: As the premium niche they occupy at the moment has turned out to be smaller than expected, Garden. com could be advised to penetrate into the more promising domain of the large low-end segment with products sold to casual gardeners.

Thus, they could address a broader target audience and potentially increase their profits. In order to diversify their product line successfully, they need to cut costs dramatically though. Furthermore, in order to ensure order fulfilment capacity, it would be necessary to strengthen and expand the existing distribution network. Another proposition which is rather aiming at the opposite direction could be to limit Garden. com’s focus on a few key segments. This implies having a deeper assortment but less variety of different product lines.

For instance, the competitive market of fresh-cut flowers could be abandoned.

Here, 1800-FLOWERS. COM represents a strong and specialised competitor. The decision to concentrate on certain product lines also entails focusing on certain suppliers. Here, Garden. com has to consider carefully the trade-off between the benefits (e.

g. closer relationships and a higher degree of commitment of the suppliers) and costs (risk potential dependence on few suppliers). Relying on fewer 4 suppliers and limiting product lines could reduce costs because products would not have to be shipped from geographically dispersed suppliers.

Operational improvements In order to achieve a “blooming” business, Garden. com definitely has to manage to standardise and improve the supply chain process with regard to supplier management, sales and operations planning, information exchange, customer backlogs and inventory management.

However, as there is always a trade-off between cost and benefit, these improvements should always be balanced with the cost of introducing new processes and systems. In order to improve inventory management, Garden. com has already made a step in the right direction: They have decided to introduce Trellis.

However, as suppliers are reluctant to integrate it, Garden. com should provide assistance in setting up Trellies or set incentives for suppliers to adopt the system.

For instance, Garden. com could link the integration of Trellis to a certain guaranteed amount of products they buy from this supplier. Moreover, Garden. com could provide monetary incentives. Additionally, Garden.

com should introduce refined software to make accurate forecasts regarding customer demand. This would lead to an ameliorated ability to anticipate both seasonal and regional demands.

Consequently, the risk of buying too much or too little goods and over-/ understocking costs would be significantly reduced. Furthermore, it is of paramount importance to strengthen relations with suppliers. This becomes even more important as the majority of the 60 suppliers are small, privately held growers which keep mutually exclusive relationships with Garden. com which generates a high degree of interdependence.

In order to achieve systematic collaboration, information sharing should be more disciplined and expanded. This can be facilitated by establishing EDI. Moreover, Garden. om has to convince its suppliers about the mutual benefits of joint forecasting and process-reengineering. With regard to one of Garden. com’s major challenges – the exorbitant costs, the company is recommended to cut costs immensely in order to be profitable.

Particularly, their expenses for customer acquisition have to be reduced dramatically. A further point that has to be addressed concerning costs, is the expensive and inefficient return policy. On the one hand, it is convenient for the customer, but on the other hand, Garden. com incurs disproportionate high costs.

Particularly the issue of reselling the returned products is problematic. Damage or seasonal issues make it hard to resell returned products.

As one of the main service output demands is customer service, Garden. com should keep its return policies. However, they should hire another company to handle the return process. In doing so, costs could be cut enormously. If Garden. com tackles these issues successfully, maybe it will not be “too late to miss the trees at the end of the runway”.

5 Appendix Grower partners Suppliers Retailer – „Garden. com” End-consumer

Flow of physical goods Information flow Appendix 1: Supply chain structure of Garden. com Note: The physical transportation of the products is predominantly carried out by FedEx. Third-PartySellers Vendors Suppliers Publishers/ Manufacturers Amazon DC End-consumer Appendix 2: Supply chain structure of Amazon Note: Between Amazon’s distribution centres and suppliers etc. , sometimes products pass wholesaler/ partner distribution centres. For a clearer overview, this tier is not included here.

6 Growers Growers Wholesalers Importers Suppliers Local florists 1-800 Flowers End-consumer

Appendix 3: Supply chain structure of 1-800 –FLOWERS. COM Note: there are multiple layers of wholesalers and importers. For a clearer overview, in the diagram only one layer is included. Sources Johnson E (2002) Garden. com At The End of the Runway.

Case study for class discussion, Tuck School of Business at Darthmouth. Professor Janice Hammond and Research Associate Claire Chiron (2005), “Amazon. com’s European Distribution Strategy”, HBS case Colby Ronald Chiles and Marguaratte Thi Dau (2005), “An analysis of current supply chain best practices in the retail industry with case studies of Wal-Mart and Amazon. com”, MIT 7