By Karen E. Thuermer, AJOT Walking through the Zappos.com fulfillment center near Louisville, KY must be, in some ways, akin to opening former Philippine Republic President Ferdinand Marcos’s shoe closet. It’s overwhelming. Unlike President Marcos who amassed 2,700 pairs of shoes, Zappos.com has around 7 million. Most are shoes with this figure also including goods such as T-shirts, handbags, eyewear, clothing, watches, skateboards, household goods, cookware, and kids’ merchandise. Which brings us to another overwhelming factor: How Zappos.com runs its business – especially its logistics and on-line fulfillment process. Since its founding in San Francisco in 1999, Zappos has grown to be the largest online shoe store. The company’s phenomenal growth began in 2003 when Zappos reached $70 million in sales and abandoned drop shipping, which accounted for 25 percent of their revenue base. The decision was based on supplying superior customer service. “I wanted us to have a whole company built around [customer service] and we couldn’t control the customer experience when a quarter of the inventory was out of our control, “says Zappos CEO Tony Hsieh. The next year in 2004, Zappos did $184 million in gross sales, and received their first round of venture capital, a $35 million dollar investment. That same year, they moved their headquarters and call center from San Francisco to Hendersonville, Nevada, outside of Las Vegas. More significant, in 2006 the company moved its fulfillment center to Shepherdsville, KY close to Louisville where it also commenced a very significant relationship with United Parcel Service (UPS). “From there, and with the help of UPS, we were able to serve areas with population density, and the U.S. lower 48 states with next day or two day delivery,” says Craig Adkins, vice president of services and operations at Zappos.com. UPS operates its world hub, called WorldPort, in Louisville, KY. As a result, sales grew from $597 million in 2006 to $840 million one year later—an amazing 40 percent jump. At that time, the company expanded its inventory to include handbags, eyewear, clothing, watches, and kids’ merchandise. The biggest push for the company, however, came in 2009 when Amazon.com purchased Zappos.com for $1.2 billion. While Zappos offered Amazon great leadership, a unique culture and great potential, Amazon brought to the table its mastery in distribution and quick customer service. Today, Zappos.com operates from two fulfillment centers in Shepherdsville that total 1.12 million square feet. The largest, from which most distribution occurs, is 832,000 square feet. Large Purchases The majority of the shoes Zappos.com sells are manufactured and sourced offshore. They encompass about every brand in the world. “Our buyers in Nevada buy direct anywhere from 1,200 to 1,400 brands each year,” says Adkins. “Ours is a wide spectrum supply chain since the shoes are made in Italy, China, Vietnam, South Korea, Honduras, even the United States.” Whereas Zappos once dealt with 250 vendors, the company now has countless more. Purchase orders for seasonal items are made three months in advance. Nearly the entire product is shipped in ocean containers with most coming from Asian suppliers. Approximately three UPS trailers full of merchandise arrive the Zappos.com Shepherdsville warehouse daily during non-peak season; five during peak season. Some shipments arrive also by Roadway Express. The goods are taken to the unloading dock where they are entered into the system. According to Adkins, the majority of these shipments arrive southern California ports of entry and are transported by truck or rail across country using intermodal transport. Decisions regarding which steamship lines to utilize and ports of entry come from Zappos.com’s transportation department and the various freight forwarding companies. This AJOT reporter contacted that department, but did not receive a reply. Adkins did reveal that purc