Wednesday, October 29, 2014

FreshDirect

FreshDirect is a relatively new company located in the northeastern region of the United States. FreshDirect specializes in online grocery retail, and they have two options for their customers to use. The first is home/work delivery, this method allows the customer to order their groceries online and arrange to have them shipped to their home or their place of work. FreshDirect has a $30 dollar minimum on orders being shipped to a place of residence and a $50 minimum on orders being shipped to a business, FreshDirect also charges a delivery fee based on the location to which the groceries are delivered1 2. The deliveries can be made as far as a week in advance and as soon as the previous day, they do not provide the option for same day delivery1 2.  Also, it is worth noting that you must be present in order to receive your delivery, they will not leave your delivery at the location. They will attempt to re-deliver the groceries as soon as possible, but a $4.99 fee will be charged (regardless of when they re-deliver)1  2

The second option they give their customers is the option to order online and pick up at their warehouse (site to store). In the site to store option, the customers place their order online, but instead of having it delivered to their home, they arrange a time to pick it up from the warehouse (located in Long Island3). The orders can be placed anywhere from one day to one week in advance4. There are not delivery/pickup fees charged and there is a minimum order of $304. Also, orders must be pre-paid. Customers have the option of looking at their groceries and can have their groceries loaded into their car free of charge4.

As I touched on previously, FreshDirect is located in Long Island and they serve the surrounding northeast area (parts of New York, New Jersey, Connecticut, Pennsylvania, and Delaware). There are a few other competitors in the area that directly threaten FreshDirect, but FreshDirect claims to have 80% of the market share in their territory6. Also, FreshDirect had sales figures of roughly $400 million in 2013, ranking as the top ecommerce grocer7, and are looking to increase those numbers through new customers in existing territories and new ones6. In October 2013 FreshDirect expanded to the Philadelphia area and is looking to expand to other areas within the northeast6. As more stores like Amazon and Walmart expand to online groceries, it will be interesting to see how smaller, more localized, companies like FreshDirect adjust.

[---Research by Connor Hawley, as part of the research team's series of reviews of ecommerce practices at different companies.]



Thursday, October 23, 2014

The (sometimes) dirty back end of ecommerce and logistics

Although this blog is generally very upbeat on ecommerce (and logistics in general), it is worth keeping in mind that the shift to ecommerce has some negative effects as well. To me, the single biggest such effect is that on labor. Labor gets moved away from interacting with customers, and the job of labor, consisting mostly of packing boxes and moving stuff around, is both physically demanding and makes the workforce easily replaceable. Customers often have no idea about this, and even if they did, often only care about lower prices and faster availability of their purchases.

This issue is not necessarily a secret; there are many articles about it in the popular and business press. One recent article that addresses the environmental downsides of the growth in ecommerce and logistics and also talks a bit about the labor issues is at Buzzfeed, Warehouse Empire, with the following subtitle:
Behind the largest undercover bribe the FBI ever paid to a public official is the story of how our whole consumer economy has been transformed, bringing lung-stunting pollution and, in some cases, political corruption.
It's a fascinating read. Personally, I'm not as against the logistics industry as this article is; after all I teach a class called Logistics. Nevertheless, these are issues that I think deserve more attention and consideration, from customers and managers in these fields.

Hat tip to Longform for the article.

Tuesday, October 21, 2014

Academic paper on ecommerce fulfillment

My colleague Stefanus Jasin and I have just posted our academic paper on algorithms for fulfilling ecommerce orders. Full paper is available on SSRN. Comments welcome! The paper is titled "LP-Based Artificial Dependency for Probabilistic Etail Order Fulfillment". Below is the abstract:

We consider an online multi-item retailer with multiple fulfillment facilities and finite inventory, with the objective of minimizing the expected shipping cost of fulfilling customer orders over a finite horizon. We approximate the stochastic dynamic programming formulation of the problem with an equivalent deterministic linear program, which we use to develop a probabilistic fulfillment heuristic that is provably optimal in the asymptotic sense. This first heuristic, however, relies on solving an LP that is exponential in the size of the input. Therefore, we subsequently provide another heuristic which solves an LP that is polynomial in the size of the input, and prove an upper bound on its asymptotic competitive ratio. This heuristic works by modifying the LP solution with artificial dependencies, with the resulting fractional variables used to probabilistically fulfill orders. A hardness result shows that asymptotically optimal policies that are computationally efficient cannot exist. Finally, we conduct numerical experiments that show that our heuristic's performance is very close to optimal for a range of parameters.

Friday, October 17, 2014

Meijer's ecommerce mystery

With over $16B in sales, Meijer is one of the largest big-box retailers in the country. However, their ecommerce operations at present are a little perplexing. On October 6, 2014, as part of this overall research project, I first discovered that Meijer.com was undergoing renovations. The webpage explaining the process stated that the website would be rebooted this fall. On October 12, 2014, when I returned to the page to do further research, it was stated that “later this year” the renovations to the website would be complete (New Meijer.com). It is possible that the website may not be available for a few more weeks. The webpage states that there would be new products and services available online, and new digital features that would make shopping at Meijer.com easier. Meijer gives customers the option to receive updates about the progress of their renovations if they follow or subscribe to one of the Meijer accounts on various social websites, such as Facebook and Twitter. Mperks members can also receive updates. The Meijer website is really the only concrete source of information about these changes. The shut down of Meijer’s online retail, has surprisingly not been covered by any major news outlets online.

Since no news articles are available, complaints about Meijer’s lack of online shopping are the only information available about the situation, other than Meijer’s webpage. These seem to suggest a certain level of dissatisfaction with the operations of Meijer.com. Perhaps Meijer is revamping its online operations because the earlier operations were not working all that well. Meijer is losing out on a great deal of business by shutting down their online shopping.

For many people, there is not a Meijer location close to them considering that the stores are mainly in the Midwest. Closing the online retail, shuts out the rest of the United States from being possible consumers. Also, online shopping is a huge business leading up to the holidays. If the website is not up and running by Thanksgiving at the latest, Meijer is going to miss out on a huge amount of business, something presumably the management of Meijer is well aware of. Perhaps the fact that Meijer is privately held is the reason press coverage on this is limited. We will update this when we have more to report.

[-- Research by Madeline Stroin]

Thursday, October 9, 2014

Amazon converges to Walmart: opens physical store

This was inevitable: Amazon will open its first physical store in New York in the next few months.  The article goes on to cite all the reasons one would expect: the ability to offer buy-online-pickup-in-store options (which are cheaper, quicker, and sometimes easier than home delivery), the ability to quickly return stuff (something this blog has noted as an advantage for traditional brick-and-mortar retailers), and of course for showrooming a selection of items. This will also allow Amazon to take more control over their delivery systems, relying less on third-party shippers.

I would expect Amazon's network of stores to increase very soon, despite the WSJ's caution that this may be unsuccessful and be reversed. What I would be interested in seeing is whether or not Amazon will allow customers to purchase stuff directly from the stores, just like any other brick-and-mortar retailer. If so, we would try have convergence between Amazon and Walmart!

Friday, October 3, 2014

Walmart opens drive-through pick-up, orders ready in two hours

Earlier this week, Walmart opened their first location where customers can order online, and pick up their items via a drive-through location in as little as two hours (as well as schedule for pickup many weeks in advance). See here for a nice little video about it. Cool stuff! This is exactly the kind of system that will enable Walmart (as well as other bricks-and-clicks retailers) compete aggressively with Amazon. For queuing theory enthusiasts, note also the fact that they've built multiple bays to serve customer orders---this kind of a system is going to be subject to a lot of variability in the service time of individual orders, so multiple bays are necessary to prevent large queues from forming.

Tuesday, September 30, 2014

Seasonal employment in retail in omnichannel context

One of the things this blog has wondered about is how the shift to ecommerce impacts retail employment. At first, one would have thought that the net result is a decrease in employment, because labor at distribution or fulfillment centers can fulfill many more orders per hour than retail salespeople on the shop floor. But now, more and more retailers are fulfilling from stores, where labor efficiency is lower than in FCs and DCs. Case in point, about Macy's (from Internet Retailer):
The department store chain announced today plans to hire 86,000 seasonal workers for the holiday season, a 3.6% increase from 83,000 last year. That includes hiring 10,000 to work in online fulfillment centers, versus 7,000 last year, a spokesman says. Plus, for the first time Macy’s is hiring 3,000 temporary employees for its stores to fulfill orders placed online for store pickup, ship online orders from stores and handle in-store returns of web orders.
For context, Macy's corporate website states that their total employment is approximately 172,500. Many points worth noting here. First, the seasonal employment is approximately 50% of their total employment! Definitely a surprise to me; most likely another of those things that betrays my ignorance. Second, the paragraph above seems to demonstrate that the shift to ecommerce or omnichannel retail is actually increasing the need for labor, with a specific additional need for extra labor at stores to fulfill ecommerce orders. Of course, this is just one data point, and not a macro-level study of the total effect on employment.