June 1999 Supply Chain Approaches for Online Grocery Stores By ManMohan S. Sodhi The Internet does not actually produce material things or deliver them. If I order my vegetables online, and they are in my kitchen later, then (a) the vegetables must have been grown somewhere else, and (b) someone must have brought them to my doorstep or even into my kitchen. As in the "offline" world, there are different supply chain models for delivery. There are at least four different supply chain strategies: Focus on ease of ordering and delivery, leveraging local grocery stores Focus on good quality and shelf-stable foods, leveraging delivery services like UPS and FedEx Focus on a small geographical region and certain types of food, leveraging demographics of this region Focus on service making it convenient for the customer to receive orders. Not only are there different delivery mechanisms; there are also different ways to order, such as modifying an existing portfolio vs. creating an order every time. There are also different ways to handle goods receipts: some require the customer to be physically present, and others will leave the groceries inside your home. Let us sample some online grocers: Peapod Peapod (http://www.peapod.com) defines itself "as a transaction, information and communication service" providing online grocery shopping and delivery. By teaming up with grocery chains in selected metropolitan areas, it offers customers the same prices, sales, coupons and "loyalty" (or loss-of-privacy) cards as their local grocery store. Delivery is made to the address you specify, and payment is due at the time of delivery. So someone has to be physically present to accept the order. In fact, there is a penalty if no one is present and Peapod cannot deliver your order. Peapod has a flexible fee structure for deliveries with a mix of monthly and per order charges. Delivery charges for residences are $5 per month with $5 per order, or $20 per month with no order cost provided the order is at least $60. If you do not want a monthly fee, you pay $10 per order. Thus, Peapod focuses on delivery, acting strictly as an intermediary between the grocery store and the customer. Groceronline Specializing in meats but having other groceries as well, Groceronline (http://www.groceronline.com) can leave your order at your doorstep. Grocery orders and frozen food orders are delivered differently. Grocery orders received by noon (MST) are shipped the same day. Frozen food orders received in the first half of the week (through Wednesday noon MST) are shipped the same day to ensure delivery within three days; orders received in the latter half of the week are shipped on Monday. Meats and other frozen foods are packed in dry ice and shipped in insulated Styrofoam containers and boxes. Orders are shipped by UPS and FedEx. Three-day shipping is possible as the products are shelf stable for months, with meats and frozen foods using special vacuum-sealed packaging for storage of up to six months. Planet-Organics, San Francisco If you live in the San Francisco area, have irregular working hours, and prefer to eat organic fruits and vegetables, you can go with Planet Organics (http://www.planet-organics.com). You decide on a box size - a smaller one for $25 and a larger one for $35 - customize the box¹s contents online, and then let Planet-Organics deliver it to your home or office every week or every two weeks. Planet-Organics offers you considerable flexibility for receiving orders: You do not have to be home to accept delivery. The box can be left outside your door, or at a central drop-off point where you can pick it up. They can even deliver it inside your home if you give them your key. They can also deliver to your work address. Payments can be made by credit card, personal check or cash. Streamline Streamline (http://www.streamline.com) focuses on service, making ordering and delivery easier, and also taking care of your videos, laundry and photographs. Initially, their "start-up" team visits you at home to help you create your Personal Shopping List to allow you to order quickly every time. The team also sets up a box (measures 60" x 30" x 62") in your garage, consisting of special shelving and a refrigerator, and installs a keypad access system so you do not have to be home to receive deliveries. The delivery day is assigned, and you can order any time and any day of the week via the Web, fax or telephone. You can review and customize your Personal Shopping List every time you log on, taking advantage of online specials and promotions. Orders are filled from a central fulfillment center in Westwood, Mass., loaded into specially equipped trucks with three temperature zones, and then delivered directly to the Streamline Box in your home. Food is separated from chemicals and detergents and dry goods arrive in air-tight containers. Videos, dry-cleaning, postage stamps and photos are also included. Conclusion Depending on where you live and what your situation is, online grocery shopping may or may not be an attractive option. But you can always browse around online grocery stores to whet your curiosity as to how veggies bring cash flows, material flows and information flows into sharper perspective on the Internet. Dr. ManMohan S. Sodhi is president of the Logistics Section of INFORMS and an experienced consultant in supply chain planning with Andersen Consulting in Chicago. He is the founder of the OR news group, sci.op-research, and helped design and create INFORMS Online. He welcomes your comments at MohanSodhi@AOL.com. Table of Contents OR/MS Today Home Page OR/MS Today copyright © 1999 by the Institute for Operations Research and the Management Sciences. All rights reserved. Lionheart Publishing, Inc. 2555 Cumberland Parkway, Suite 299, Atlanta, GA 30339 USA Phone: 770-431-0867 | Fax: 770-432-6969 E-mail: lpi@lionhrtpub.com URL: http://www.lionhrtpub.com Web Site © Copyright 1999 by Lionheart Publishing, Inc. All rights reserved.