"Grocery Gateway: Customer Delivery Operations"

Grocery Gateway, founded in 1997, was Canada s largest direct online grocer in November 2001 with approximately 125,000 registers shoppers. The convenience of online shopping is still in its early growth stages and Grocery Gateway has already established a known recognizable reputation and holds a large market share. However, it holds competitive advantage and improves in profits; Grocery Gateway must improve its efficiencies by making better use of its resources and consider potential capital investments. Dominique Van Voorhis, vice president of industrial engineering and operations systems, is looking for recommendations aimed at improving delivery operations. Company Background: Grocery Gateway provided services to residents of the GTA and serviced an area of 3,200 KM Sq with a population of seven million people. Online Shoppers could select from 6500 items at the grocerygatway.com website, including dry goods, health and beauty product, meat, fresh product, frozen foods and drinks. Product were price competitively with grocery retailers, minimum order expected was $60 per customer and pay $8 delivery fee. The company offered 90-minutes delivery window from 6:30 a.m. to 10:30 p.m. Customer Fulfillment Center: In May 2001 Grocery gateway relocated from 6225 square meter facility to new 26,000square meters facility in Downsview, north of Toronto. The new facility had been built with three temperature zones using the best designs and technology to make it more efficient to fill the orders. The company employed 275 people in customer fulfillment center and 100 drivers and had a fleet of 55 trucks. Grocery Gateway's systems integrated a variety of technology solutions, built around five main systems that were used to generate and execute orders. The Web-order processing system was developed in-house. Main systems are: OPS: Order processing system, manage the execution of the order picking tasks, handled initiation of the tote and made decisions regarding when an order should be picked to arrive at the truck on time.

RIMMS: Resources in-monitoring system, a dynamic road organizer provides route delivery schedules generated from algorithms that took into account delivery window, drive time, time of day, road type and other factors.

WMS: Warehouse management system tied to OPS and to warehouse control system WCS.

WCS: Warehouse control system, customized software that controlled the movement of totes on the conveyors lines.

Delivery Operations: Grocery Gateway has a fleet of 55 truck and 100 drivers, drivers called ten minutes before arriving to ensure that customers were available. Customers paid at the door, not over the internet. Delivery staffs were equipped with remote point-of-sale terminals for debt or credit card transactions. On average, the driver took 15 minute for set-up time, 30 minutes for driving to the delivery area, 30 minutes for return to the customer fulfillment center and 15 minutes for close-out. The left an average of 6.5 hours available for deliveries. Management estimated that the available cost of vehicle and driver was approximately $30 per hour.

Problem Statement: Dominique, vice-president of industrial engineering and operations systems for Grocery Gateway has to prepare a plan consistent with the overall strategy for the company aimed at improving delivery operations and recommend how to increase the number of stops per hour for its drivers from 2.7 to targeted 4 stops per hour, and reduce delivery window to 30 minutes.

Corporate Goals: The Grocery Gateway focus was on aggressive growth from 1500 order per day to target of 5000 orders per day within three years, and become cash flow positive on variable costs basis in one year. The company placed specific attention on low cost, high service logistics execution in one market .

SWOT Analysis: Strengths: - Largest direct online grocer with 125000 registered customers. - Wide selection of products with 6500 items. - Competitive prices compare to regular grocery retailers. - During the peak period 1500 orders a day with average value of $135. - The company optimized its facility to accommodate a profile similar to the profile of e-commerce orders. - New integrated facility with the best design and technology including 5 integrated systems.

Weaknesses: - Sales volume are subject to seasonality and decline by 50% of peak level in summertime. - Fluctuating orders sizes from 30 to 90 items. - Customers not able to inspect the products such as fresh produce. - Limited only to small drop offs. Large drop offs that could be palletized do not fit the model. Opportunities: - Expansion to other regions by utilizing franchise opportunities. - Utilize technology to greater extent to reduce the delivery time. Threats: - Decline in economic environment may motivate people to save on delivery costs and opt to use the traditional shopping channels. - The company may not be able to achieve its aggressive forecast of 5000 orders a day.

- Ability to remain reliable in meeting delivery timelines and maintaining customers service levels. - Increased competition in the GTA area. - Will there be sufficient demand to achieve the masses and accomplish the targeted 5000 orders a day.

Competition Analysis: Grocery Gateway does not have much competition in strictly online environment in the area. However, the regular grocery stores can be considered competition as the customer has always a choice to visit the store instead and purchase the same product. Additionally, they can inspect the products such as fresh produce which is an added benefit compare to online shopping. Some existing grocery stores are also providing their customers with an alternative to allow them to order their products online or by phone and have the produce delivered.

Alternatives Analysis: Alternative -1: Keep the trucks on the road longer by extending driver shifts.

Pros: Enables drivers to make more deliveries per day. Enables drivers to spend more time with customers, thus increasing customer service. Increases customer service with more flexible delivery times (early morning or evening). Able Increased ability to meet increased order demand. Cons: Does not ensure reaching the target 4 Deliveries/hour. May increase the risk of driver accidents due to fatigue. Increased wage expenses due to overtime for truck loaders.

Would require a plan to replenish. Increases expenses and costs per delivery Will Reduced profitability unless the number of orders also increases Government regulation.

Alternative -2: Modify RIMMS program to analyze route profitability and modify route schedules accordingly.

Pros: Would provide meaningful information to make the appropriate decisions. Will increase profitability by scheduling routes based on maximized profitability. Will reduce delivery window, and may reduce cost, driver time consumed. Cons: Does not ensure reaching the target 4 Deliveries/hour. Will cost approximately $250,000. Unknown consequences.

Alternative-3: Increase delivery charge.

Pros: Will increase profit per delivery as a larger portion of the direct cost per delivery will be assumed by the customer. Will not require additional capital expenditures and increased driver hours the higher delivery fee may entice some customers to increase the size of their order in order to reduce the number of deliveries that are required. This will reduce the number of driver hours. Cons: The higher delivery fee may discourage some customers and decrease revenues. Does not ensure reaching the target 4 Deliveries/hour.

Recommendation: Expanding the RIMMS licensing arrangement is the best choice (Alternative-2). It is true that there is an expected cost of $ 250,000 but it would eventually be recovered in a couple of months, for example, if they save 30 minutes of 100 drivers delivery time, that is mean they will save $1500/day, and hence the cost of RIMMS license will be recovered with less than six months. Also, this solution will be consistent with the overall Grocery Gateway strategy as it would allow the company to maintain the low-cost, high service logistics execution. In the short term, the company will deal with lower cash flow due to the cost spent for RIMMS. The new plant is bigger, so its means the company is expanding. There is a long term benefit for the company as there will be cuts in cost and change in technology is the reason of leaning towards RIMMS.

Action Plan: y Ask and research more on who the users are or if there is a different company who offer the same idea as RIMMS. Compare RIMMS with the other similar program and find out the length of training in going with a comparable program. y y Ask for trial to check the new features before purchase, and see validity of them. Provide above gathered information supported by financial analysis for the CEO recommending purchase of new software. y Once proposal is agreed upon and if decision is to stay with RIMMS, contact Descartes and ask for warranties, support and trainings available that is included in the price. y y Training should be offered to employees. Keep a log of the new system and compare it with the old one to evaluate the purchased features.

Additional plan In addition to purchase the new RIMMS features, Grocery Gateway could look into moving the payment function from the driver and allow the customer pay on online. This would save some of the driver time and allow him to increase the number of deliveries in an hour. Customer survey should be conducted prior to implementation.