Required information
Skip to question
Grocery Delivery
Supply chain management refers to a set of approaches and techniques firms employ to efficiently and effectively integrate their suppliers, manufacturers, warehouses, stores, and transportation intermediaries into a seamless operation in which merchandise is produced and distributed in the right quantities, to the right locations, and at the right time. This activity is important because companies have to accomplish these efforts as well as to minimize systemwide costs while satisfying the service levels their customers require.
The goal of this activity is to demonstrate your understanding of supply chain management and why it is important.
Read the case about how Walmart implements its grocery delivery business and then answer the questions that follow.
On a busy day, have you ever realized that you needed to find an hour or more to hit the grocery store to pick up items so you and your family had something to eat for dinner? Have you ever been in aisle 16 and realized you forgot to pick up the avocado you needed from aisle 2? Or been stuck in a long checkout line, waiting for what seems like forever for the people in front of you to pay?
These sorts of inconveniences and time demands are among the primary reasons that almost half of all U.S. households have ordered groceries online, with online grocery sales rising 15 percent in the past year.1 Within just a few years, online grocery sales are expected to account for about 20 percent of all groceries purchased.2 These trends are clear. What is less certain is the implications they will have for grocery supply chains. To gain a better understanding of how the vast expansion of grocery delivery services will overhaul general grocery and retail supply chains, this case uses Walmart as an example of a retailer that is tackling this new market proactively and aggressively.
Already a top contender in the brick-and-mortar grocery segment, Walmart identifies its online grocery service as one of its fastest-growing business divisions.3 It currently offers delivery from about 1,600 of its stores while also hosting pickup operations at around 3,100 stores, with expansion plans firmly in place.4
But this growth and expansion are not without roadblocks, literal and figurative. For example, when its Jet.com division introduced fresh-food delivery in New York City, the experiment lasted for less than a year. Jet opened a distribution center in the Bronx, but it had trouble keeping popular fresh items, like bananas and chicken, in stock. The service also offered cheaper prices than established competitors at first, but because it was unable to turn a profit, it was forced to start raising delivery prices.5
The stocking issue that Jet confronted is a prevalent one. Grocery delivery in particular has unique requirements: Many items are perishable (e.g., fruits, meats), some need to be kept frozen (e.g., ice cream), and others can be easily crushed and ruined (e.g., eggs). Moreover, people have strong preferences for the types and quality of items they expect (e.g., bananas at just the perfect level of ripeness). These demands affect all stages of the supply chain.
At the warehouse and distribution level, for example, unlike online retailing of books or clothing, selling food electronically creates a host of challenges. Some food needs to be frozen, while other items should just be cold, so a single warehouse might need to provide varying temperature zones. Certain products need to be defrosted slowly before being put on a truck for delivery. Others can never leave a frozen state and still be delivered in a way that ensures they are safe for consumption.6 Walmart has built new distribution centers to meet such demands.7 In addition, a new warehouse outside Bakersfield, California, uses specialized sorting and picking technologies for enhanced efficiency, such that it can process 40 percent more cases than a traditional perishable distribution center.8 Yet developing new warehouses and distribution centers demands substantial investments and time.
At the delivery stage, the challenges grow even more numerous. For example, in urban areas like New York City that have no Walmart stores, getting items to apartment dwellers would demand extremely long supply chains, which makes the service inefficient, especially compared with a local corner shop that can get necessary items to consumers within just a few minutes.9
Another option combines novel technology with old-fashioned personalized service to achieve effective delivery. Walmart’s InHome Delivery service promises to get people’s cold food items into their refrigerators, on time and conveniently, even without them being at home. Customers who sign up for the service need to have a smart lock system on the doors of their homes. Then they place an order, and a Walmart employee collects the grocery and other items, comes to their house, gains access, and stocks their pantries, freezers, and refrigerators.10 For the entire time the delivery employee is in the home, a wearable camera transmits that person’s precise location and activity, so the customer can track exactly what happens during each delivery.
Beyond these technological features, the service promises a sort of personal connection with the person providing it. Customers can read the biographies of the delivery personnel, filled with personal details. Walmart also has noted the extent to which it is training these employees, encouraging them to act as if they were entering the home of a close friend or family member. Although the idea of letting a stranger into your home may be uncomfortable, Walmart has determined that the added convenience of the service, coupled with the measures Walmart takes to ensure security, makes the program valuable to most customers.11
Finally, it is working with third-party delivery services (e.g., Skipcart, Postmates, Door- Dash) and expanding its business-to-business relationship with FedEx, shipping far more products using FedEx’s standard and express services, which enable it to ensure same-day delivery.12 Alternatively, it is experimenting, in collaboration with the robotics company Nuro, with delivering groceries in self-driving cars that can carry up to 12 grocery bags.13
Thus, Walmart appears determined to get in the grocery delivery business, using whatever logistics it takes and regardless of any hurdles it might encounter. In turn, busy, convenience-minded consumers can expect that Walmart will find a way to get their groceries to them.
References:
Jaewon Kang, “Safeway Owner, Rival Grocers Bet on Smaller Warehouses,” The Wall Street Journal, December 12, 2019.
Kate Patrick, “Solving for the Grocery Last Mile Is Harder Than You Think,” Supply Chain Dive, April 26, 2018.
Nicholas Shields, “Walmart Is Reconfiguring Its Supply Chain around Groceries,” Business Insider, October 22, 2018.
Marc Lore, “Walmart Taking Grocery Delivery One Step Further,” Supply Chain 24/7, June 7, 2019.
“Walmart’s Jet Ceases Its New York City Fresh Grocery Business,” Ad Age, November 22, 2019.
Ester Fung, “E-Commerce Made Warehouses Hot. Now Investors Warm to Cold Storage,” The Wall Street Journal, December 10, 2019.
Jaewon Kang, “Safeway Owner, Rival Grocers Bet on Smaller Warehouses,” The Wall Street Journal, December 12, 2019.
Nicholas Shields, “Walmart Is Reconfiguring Its Supply Chain around Groceries,” Business Insider, October 22, 2018.
“Walmart’s Jet Ceases Its New York City Fresh Grocery Business,” Ad Age, November 22, 2019.
Jeff Wells, “Will Shoppers Let Walmart Stock Their Fridges?,” Retail Dive, June 7, 2019.
Nathaniel Meyersohn, “Walmart Testing Grocery Delivery Right to Your Fridge,” CNN Business, June 7, 2019.
Michael Corkery, “FedEx Says Its Ending Express Shipping Service for Amazon,” The New York Times, June 7, 2019.
Sarah Perez and Kirsten Korosec, “Walmart Partners with Self-Driving Startup Nuro to Test Autonomous Grocery Delivery in Houston,” TechCrunch, December 10, 2019; Lorraine Longhi and Ryan Randazzo, “Self-Driving Robots Can Deliver Your Groceries from Fry’s in Scottsdale,” The (AZ) Republic, January 24, 2019.
Today, when a customer orders grocery delivery from an online vendor, the vendor usually sends an immediate order confirmation message by email. Usually within the promised delivery window, a second message arrives, stating that the order is on the way. This second message is a type of
