SUPPLY CHAIN MANAGEMENT

Week 5: Supply Chain & E-commerce

Luyi Gui

Last Week

Push and pull

Reactive strategy of Zara

Alignment between supply

chain management, product
design and corporate value
positioning
Disruptive technologies

SCM
Corporate
value
Product
design

E-Commerce: A Pull Strategy

Supply chain infrastructure

Data analysis
The big picture

Disruptive Technology - .com business

Smart shopping for busy people

E-commerce Supply Chain

Supply

Demand

Customer
profile

Why and Why not Shop Online?

Advantages

Comparable prices, easy ordering, convenience

Disadvantages

Procrastination
Forced one-place shopping and large orders
No new product learning experience
Attended delivery required

Customer Acquisition Process

Customer Acquisition Process

Convert visitor to first time customer (17%)

first-time customer to third-order customer
if a customer places 3 orders, that customer becomes loyal

Internet Grocer Fulfillment Strategies:

1. In-store picking (Tesco and early Peapod)

E-commerce Supply Chain

In-store picking

PULL

Supply

Demand

Internet Grocer Fulfillment Strategies:

2. Centralized Fulfillment Center (DC)

Peapods CA warehouse
10

11

12

Centralized & Automated DC: Webvan

13

E-commerce Supply Chain

In-store picking

Supplier

14

PULL

Manufacturer

Supply

Centralized
Fulfillment
Center

Demand

Centralized
DCs

PUSH-PULL

E-grocers Supply Chain Strategy

Focus on order
fulfilment
With push
components
incorporated
to reduce cost

Smart shopping
for busy people
SCM: A
pull-based
system

Corporate
value

Profitable?
15

Are Internet Grocers a viable on-going concern?

16

17

Internet Grocer Fulfillment Strategies:

3. Bricks & Clicks Hybrid (current Peapod)

Peapod Ahold partnership

What is it? How does it work?

Online service as part of an established retailers business

What are the main advantages?

18

Use Aholds purchasing power COGS (cost of goods sold)

drops to 68% of the net sales
Co-branding in marketing (easier to gain market share)
Use of existing infrastructure (save on fixed asset cost)

E-commerce Supply Chain

Bricks & Clicks

PUSH-PULL as part of a
multi-channel business

Supplier

19

Manufacturer

Supply

Warehouse
system

Demand

Path to Profitability? How to Improve Profit Flows?

Increase gross margins. How?

Work on sourcing

Reduce COGS

Increase average order size

Add service fee
More product differentiation that justifies a higher price

Increase fulfillment productivity

20

DC operations to increase picked & packed per hour

Delivery operations: must increase SPH (stops per hour)
Example: Amazons automated warehousing systems and
efficient delivery networks

Zara v.s. Peapod/Webvan

Zara

Peapod / Webvan

Competency of the
corporate value in the
industry

High

Low

Potential customers

Large and growing

Limited

Profitability
(why?)

High
(path to profitability in
fashion is provide what
customers like)

Not profitable
(path to profitability in
grocery is cost efficiency
and scale economies)

Innovative product
21

Functional product