Part of a Special Report: The Future of the Web

3 Critical Issues in Internet Retailing

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The maturation of online commerce confronts Internet retailers with some important inflection points in their strategy. Managing Internet retail operations will increasingly involve more than simply managing costs, the authors point out. It will require an understanding of the unique challenges of the category and target market — as well as the individual product and customer. Each of these factors produces a different cost-service tradeoff and, accordingly, different "right" answers. More complex still, the answers will keep changing as the online channel grows, customer expectations evolve and operational options expand.

Going forward, three critical operational issues face these retailers: How should returns be managed to achieve immediate customer profitability and long-term loyalty? Is the structure of the physical distribution network optimal? Where should product inventories be deployed across the network for the best cost and service combination?

Timothy M. Laseter is assistant professor of business administration at the Darden Graduate School of Business at the University of Virginia. Elliot Rabinovich is assistant professor for supply chain management at the W.P. Carey School of Business at Arizona State University. Kenneth K. Boyer is professor of operations management at the Eli Broad College of Business at Michigan State University. M. Johnny Rungtusanatham is associate professor of operations and management science at the Carlson School of Management at the University of Minnesota–Twin Cities. Comment on this article or contact the authors through smrfeedback@mit.edu.

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