Tag: online shopping

OM in the News: Walmart’s Grocery Robots

Walmart’s Alphabot machines are designed to up efficiency and cut labor costs.

In the backroom of a Walmart store in Salem, N.H., is a floor-to-ceiling robotic system that the retailer hopes will help it sell more groceries online. Workers stand on platforms in front of screens assembling online orders of milk, cereal and toilet paper from the hulking automated system. Wheeled robots carrying small baskets move along metal tracks to collect those items. They are bagged for pickup later by shoppers or delivery to homes.

Walmart is using automation to improve efficiency in a fast-growing but costly business that comes with a range of logistical challenges, reports The Wall Street Journal (Jan.9, 2020). The backroom robots help cut labor costs and fill orders faster and more accurately. They also unclog aisles that these days can get crowded with clerks picking products for online orders. Walmart can’t “disadvantage our most-profitable customer, which is the one who drives to the store and does all the work themselves,” said a company exec.

A store worker can collect around 80 products from store shelves an hour. The robotic system, called Alphabot, is designed to collect 800 products an hour per workstation, operated by a single individual. Workers stock the 24-foot-high machine each day with the products most often ordered online, including refrigerated and frozen foods.

Walmart has become an online grocery heavyweight by offering a service from thousands of stores that lets shoppers pick up online orders from store parking lots without leaving their cars. It also offers home grocery delivery from more than 1,000 stores. Online grocery sales are growing fast, but the logistical and profit challenges of filling shoppers’ orders and delivering fresh food to homes have retailers battling to find a model that pays off.

Using store workers to fill orders with products already on shelves isn’t only costly, it makes it hard to tell online shoppers exactly what’s available at any given moment. “The whole problem with picking inventory from the shelf is inventory is never where it’s supposed to be,” said an industry analyst.

Classroom discussion questions:

  1. What are the advantages and disadvantages of the Alphabot system?
  2.  Chapter 2 of your Heizer/Render/Munson text lists 3 approaches to achieving competitive advantage. Which one(s) does Walmart employ?

OM in the News: The Roads Will Be Crowded on Sundays With UPS Trucks

UPS will start delivering packages on Sundays next year, following the move of FedEx as the two package giants battle to control the nonstop demands of online shopping. UPS, which currently delivers and picks up 6 days a week, will switch to 7 days in January. It will be assisted by the U.S. Postal Service, which delivers some UPS packages to homes for the final leg of a package’s journey.

UPS notes that Americans shop online 7 days a week and that there is increasing demand for deliveries every day. Amazon, one of the biggest package shippers, is building out its own transportation operations and fleet of local delivery vehicles. “The changes illustrate a grand realignment of America’s parcel delivery apparatus as companies try to determine how best to deliver packages for insatiable online shoppers at the lowest cost possible,” writes The Wall Street Journal (July 24, 2019).

UPS recently negotiated a union contract with its workers that created a new type of driver that would work weekend shifts at a lower pay scale than its regular delivery drivers. The company is taking additional steps to meet shipping challenges, including teaming up with the retailers CVS, Michaels. and Advance Auto Parts to use 12,000 of their stores as new drop-off points for deliveries and returns. More of these access points help lower delivery costs because its cheaper to deliver multiple packages to one location instead of singular deliveries to multiple homes.

FedEx itself has pushed ahead into expanding its own onsite network, recently announcing that it would work with Dollar General to use 8,000 of the retailer’s stores as drop-off and pick-up locations. UPS and FedEx both say that more than 90% of Americans will live within 5 miles of a drop-off location in their networks.

Classroom discussion questions:

  1. Referring to Figure 2.4 (Achieving Competitive Advantage Through Operations), which strategy is UPS following?
  2. What steps is UPS taking to compete successfully on Sundays?

OM in the News: Amazon Falls Short Over Food Delivery

A contract employee for Amazon picks up bags of groceries to deliver to Whole Foods customers

Amazon last year began offering some Prime members online grocery-shopping and delivery from Whole Foods, touting the service as another perk to customers after purchasing the organic grocery chain. But Whole Foods employees said Amazon workers routinely ask for help finding items on shelves or elsewhere, distracting them from their own duties. And technology that tracks Whole Foods’s inventory is old.

Amazon’s struggles aren’t unique, writes The Wall Street Journal (March 25, 2019). As supermarkets increasingly offer online grocery delivery to keep customers loyal, most services that fill orders from stores are struggling with execution. The challenges are numerous. Many grocers don’t have technology that can readily track inventory in real-time. That means items listed as available online often aren’t in the nearest stores filling a delivery order, leading employees to make their best guess or rely on computer recommendations that can suggest unsuitable substitutions.

Target recently introduced a new inventory-management system for stores and online to speed up replenishment. At Instacart, the largest third-party grocery-delivery service, incomplete orders were the second most frequent source of customer dissatisfaction, after price. Some 15% of consumer products listed on U.S. online ordering services are out of stock when it comes to fulfilling them, nearly double the rate in stores.

There are a number of reasons why many online grocery services struggle to offer substitutions customers want. Shoppers typically depend on suggestions from online tools, and algorithms can make mistakes or suggest inappropriate alternatives. Services that rely on gig-economy workers who pick items off store shelves can exacerbate the selection problem, since many aren’t food experts and juggle many orders a day. Mishandling substitutions is expensive for retailers, as it often leads to refunds or a replacement item that is pricier than the original. Refunding incorrect items decreases an online order’s profitability by 1% to 2% on average.

Classroom discussion questions:

  1. What are the inventory issues that online grocers face?
  2. What can be done to make the systems more efficient?

 

OM in the News: Walmart’s Food-Delivery Challenges

There are many hurdles Walmart and other large grocers face as they race to expand fresh-food delivery and gain an edge in one of the fastest-growing e-commerce segments, reports The Wall Street Journal (March 15, 2019). Despite Walmart’s resources and more than 1.5 million U.S. workers, it mainly relies on a patchwork of independent companies to expand its delivery services as quickly, broadly and cheaply as possible.

A Walmart employee makes her way through a store, collecting items to fill a customer’s online order.

Walmart, the country’s biggest seller of groceries, is facing pressure to push forward in delivery because Amazon, a chief competitor, is making inroads in grocery sales. (Walmart generated $200 billion in U.S. grocery sales last year, more than double Kroger’s take and 5 times as much as Amazon’s in the sector). In recent years, Walmart added a service for placing online grocery orders for parking-lot pickup at 2,100 of its 4,650 U.S. stores. About 35,000 U.S. Walmart employees called “pickers” now weave through aisles compiling online grocery orders– a slower and more costly process than fulfillment from specialized distribution centers.

Walmart is offering delivery from 800 stores, with another 800 planned this year, mostly by joining with firms like DoorDash that crowdsource drivers. Walmart pays a fee to the driving companies and charges customers $8-$10 per order to offset that cost. But filling online orders with store workers in spaces organized for shoppers can be complex and expensive. And drivers for delivery firms need an incentive to lug bulky grocery orders from their cars to customers’ doorsteps. Walmart is testing using its own store workers to make deliveries. And last year, it began arming workers with devices that tell them the fastest route through stores and the optimal order to place items into bags. Future remodels could tweak stores to better accommodate online ordering.

Classroom discussion questions:

  1. What are Walmart’s core competencies (see Chapter 2) as they relate to food delivery?
  2. What are its key success factors (KSF’s)?

OM in the News: Your Food is Almost Here

A DoorDash delivery person in New York City.

“Consumers expect to order books, toys, shoes and anything else they want online and have it show up at their doors quickly and inexpensively,” writes The Wall Street Journal (March 9-10, 2019). Now restaurants and grocers are rushing to satisfy the exact same demand. They’re having a hard time. A hungry customer might order a $9.99 Cuban sandwich from Panera which can arrive at her door in about 30 minutes. The problem for Panera is that each delivery costs $5 after accounting for labor, gas and packaging. Yet to avoid turning away customers, it continues to charge a flat delivery fee of $3 per order.

Food delivery is proving to be a thorny, expensive and crucial puzzle for restaurants and grocers. Billions of dollars have been spent in a quest to build services that reliably move fresh food from one place to another, yet many in the business wonder if they will ever get the economics right. Most delivery orders remain unprofitable. It costs supermarkets an average of $10 an order to deliver food, but grocers only recoup around $8 from customers because charging more risks turning off shoppers. And 85% of consumers aren’t willing to pay more than $5 for restaurant delivery. Walmart now offers grocery delivery through a half-dozen third parties, but e-commerce losses are expected to increase this year.

Online grocery sales are expected to grow to $86 billion in 2022 from $17 billion in 2017, while sales of online restaurant delivery will grow to $62 billion from $25 billion in that same span.

Unlike easy-to-ship household items, groceries must be packaged carefully and sent in refrigerated trucks. That makes the last mile of the delivery process—from the warehouse to the consumer’s door—a costly, often perilous journey. Restaurant meals must likewise be packed in special containers and delivered within a short window. Restaurants can’t ignore delivery since 1/3 of restaurant meals are now consumed at home! Yet few chains can afford to do delivery themselves, due to the cost of developing order-taking technology and of employing drivers.

Classroom discussion questions:

  1. What OM issues do grocery stores face is setting up online delivery systems?
  2. What percent of your students are using online restaurant delivery? Their comments?

OM in the News: Wal-Mart Cracks the Code for Online Groceries in China

An employee fills electronic orders for the 1-hour delivery platform at a Wal-Mart store in Shanghai

Amazon may have sent a chill through the U.S. supermarket business with its purchase of Whole Foods. But grocers also had better keep an eye on the world’s largest brick-and-mortar retailer—Wal-Mart Stores—for some lessons on the future of online grocery shopping. Wal-Mart has already developed a big online grocery delivery business in China, capable of transporting fresh produce from its shelves to homes within an hour.

To accomplish that feat, it’s created a network of chilled mini-warehouses, used A.I. to tailor inventories, and employed an army of crowdsourced deliverymen to rush meat, fruits, and vegetables to customers’ doorsteps. That could provide it with insight and experience to keep tech upstarts from disrupting it out of one of its core U.S. businesses.

Fresh food is considered the last frontier of Chinese e-commerce. “Wal-Mart’s efforts in China revolve around trying to tap into a smartphone, convenience-craving, population,” writes Businessweek (Dec. 4, 2017). 

At the heart of its operation are what it calls “dark stores” that stock 1,500 different products such as bananas, pork ribs, dumplings, and chicken feet. Workers grab printouts of the online orders, zip through the aisles placing items in a bag, and exit the other side, where they hit a button summoning a delivery driver. The drivers are independent contractors with cellphones and scooters. The time from picking up the order printout to hitting that button can’t exceed 10 minutes, or else the 1-hour delivery is in peril.

Shelves are stocked with products based on order patterns for the surrounding area—meaning a store in northern China may have more soup ingredients as winter comes. The company adjusts each store’s online inventory every 4 weeks, and the added information about fresh grocery demand from web orders helps boost the accuracy of Wal-Mart’s product forecasting for offline stores.

Classroom discussion questions:

  1. Is this online operation transferable to the U.S.?
  2. How does this approach differ from typical supermarket shopping?

OM in the News: The Shopping Mall With No Stores

At Fairlane Town Center in Dearborn, Mich., Ford converted a former 240,000 sq. ft. Lord & Taylor department store into a workspace for almost 2,000 engineering and purchasing staff.

As retailers close bricks-and-mortar stores at an accelerating pace, shopping-center landlords are facing a vexing question: What to do with all this empty space? “Their solutions,” writes The Wall Street Journal (June 12, 2017), “are varied but all have a common element: reducing, or even eliminating, retail from the equation.”

Some landlords plug empty spaces with churches, for-profit schools and random enterprises while they figure out a long-term plan. Others see a future in mixed-use real estate, converting malls into streetscapes with restaurants, offices and housing. And some are razing properties altogether and turning them into entertainment or industrial parks.

A construction binge in the 1980s and ’90s left the U.S. oversaturated with malls. Growth in online sales and declining demand for full-priced goods are causing retailers to shrink their store fleets and divert resources to e-commerce platforms.

More than 8,600 stores are expected to close this year. Analysts predict that 400 or so of the 1,100 malls in the U.S. will close in the coming years.

One strategy is to convert enclosed malls into open-air properties that landlords call “lifestyle centers,” with apartments, theaters, grocery stores, medical offices and other conveniences—and much less retail.

Classroom discussion questions:

  1. Are malls easily convertible to an office layout remodeling? Why?
  2. Provide local examples of how malls are adapting to the changing (shrinking) retail store climate.