Case Study Building an Online Grocery Business: The Case of ASDA

1. Case Study Building an Online Grocery Business: The Case of ASDA.com Arthur Tu 9534805 指導老師: 蔡銘箴 教授

2. Learning Objectives • Background • Phone-based Catalogue Shopping • ASDA@tHome • Conclusion/Vision • Question

3. Background

4. Organization Background - ASDA • Asda was formed in 1965 by a group of farmers from Yorkshire, and its activities are still mainly based in the north of Britain. It expanded south in the seventies and eighties, in 1989 buying rival chain Gateway's superstores for £705m. • Asda standing out from the crowd by being significantly cheaper than its three large rivals. This was achieved through concentrating on prices instead of loyalty schemes. • After years of mutual fancying, Asda was bought – or 'became part of the Wal-Mart family' - on 26 July 1999 for $10.8 billion. Since then, Asda claims that it has gained one million new customers. It is converting some stores to Wal-Mart's super-center format under the ASDA-Wal-Mart banner. • Mirroring Wal-Mart Strategy: Asda engaged in an aggressive price war for market share using its 'every day low prices' marketing line. Asda is also following a Wal-Mart strategy of increasing the sales area by removing stockroom space and increasing the non-foods sales area. Massively increasing non-food sales is an area that Asda Wal-Mart has pioneered, leaving other supermarkets running to catch up. • IT infrastructure synchronization with Wal-Mart: IT integration between ASDA and Wal-Mart was completed at the end of 2002. The heart of the IT infrastructure is RetailLink. In 2003, RetailLink facilitated the daily trading practices between ASDA and more than 1000 suppliers.

5. Organization Background – impact of Retail Link on ASDA • Getting customer what they want • Advanced data-mining for accurate merchandising • In the price they want (even lower), when they want them: • Real-time data for minimized inventory cost • Perpetual inventory and collaborative planning, forecasting, and replenishment (CPFR) for optimized replenishment • Global purchasing for improved bargaining power and quality of goods • Improved logistics capability

6. Timeline of major development in ASDA home shopping • Dec. 1998  ASDA’s home-shopping initiative piloted, called ASDA@t Home • Jan. 1999  ASDA@t Home launched via phone/catalogue with warehouse in Croydon, London • Jul. 1999  ASDA@t Home launched PC-based home–shopping using CD-Rom together with phone/catalogue; another warehouse was opened in Watford, London • Nov. 2000  ASDA@t Home online home-shopping was trialed • Dec. 2000  ASDA@t Home online home-shopping was launched • Jul. 2001  PC shopping with CD-Rom was terminated • Aug. 2001  ASDA@t Home online embraced in-store picking model, running together with warehouses. • Jan. 2002  ASDA home-shopping warehouses were closed and full in-store fulfillment was rolled out nationally form 52 stores; Web site development and maintenance were outsourced to third party • Feb. 2002  Digital TV shopping launched with Sky Digital • Jan. 2003  Digital TV shopping was terminated • Aug. 2004  Expansion of home-shopping to 21 more stores, covering 40% of UK population • End of 2004  ASDA@t Home changed to ASDA.com

7. Phase I Phone-based Catalogue Shopping

8. Start Ordering Process Customer register details on the phone Special instruction recorded by operator Any special instruction ? Phone Operator take details and ask customer to read 6 digit codes next to catalogue Is there any other orders ? Customer pay with credit/debit card on the phone Customer read 6 digit codes Operator key in order to PC system, automatically downloaded to Home shopping server Phone Operator read out product Product Correct ? Finish Ordering Process Phone-based catalogue shopping ordering process for ASDA@tHome Yes No Yes No No Yes

9. Phase II ASDA@tHome

10. In-store picking vs. dedicated picking center  In-store picking • Benefits • Negligible start-up cost • Instant coverage of service to wide audience using supermarkets network nationwide • Little extra to current operational cost • Wide range of products offered (following the store’s range) • Limitations • Limited home-shopping fulfillment capacity • Inefficient picking process – high cost • No visibility of goods availability • Risk of error in goods replacement • Big risk of product error in general • Disturbance to offline customers • Lower assurance over food quality in online order fulfillment

11. In-store picking vs. dedicated picking center  Dedicated picking • Benefits • High home-shopping fulfillment capacity • Optimized picking process-low cost • Near real-time visibility of goods availability • Limited chance of the need to replace goods • Less risk of product error in general • No disturbance to offline customers • Better assurance of food quality in online order fulfillment • Limitations • Significant start-up cost • Only covering areas surrounding the warehouse (even though each warehouse can cover a much wider area than a store), therefore slow coverage to wider audience • Smaller range of products offered

12. Reasons for the Close of dedicated picking center (warehouse) • After 18 moths of operation it become apparent that the dedicated fulfillment center was not suitable to support the growth of the business, reasons are summarized as follows: • Low customer uptake for online grocery home shopping while it was very expensive to run the warehouse  unable to breakeven • Small coverage of ASDA@tHome current warehouse • It took a lot of investment of expand the business further with the current • Smaller variety of product offerings with dedicated fulfillment center

13. Phase III ASAD.com

14. ASDA.com Online shopping

15. Customer online shopping process at ASDA.com Online shopping start Customer Register by first entering postcode Customers can: leave contact details to be informed when the service is going to that area or about local store, look around the shop, learn how to shop online Asda @t Home inform that they have not delivered to the area yet. Asda @t Home deliver to that area ? Stop online shopping Book Delivery slot Details correct ? Change details Choose products: by aisles, “search” previous orders, quick start shopping Choose payments Submit orders & payments Finish Shopping ? Add products to shopping basket Amend orders Receipt correct ? Proceed to checkout Check delivery & order details Finish online shopping No Yes No Yes No Yes No Yes

16. In-Store Fulfillment Start Data of customer shopping details transmitted to nearest store In-Store PC records data and automatically assign customer orders in batches for picking Products substituted? Substitution ? Palm Pilot downloads orders in batches Product marked as missing Pickers guided by palm pilot around the stores and pick several items at once Product available ? Orders handled for delivery Product scanned into palm pilot Items are placed in totes marked with customer orders Pickers to back to warehouse to log palm pilot to PC, inform the PC that the batch has been picked Any other items to pick ? In-store fulfillment process finished ASDA.com in-store fulfillment process Yes No No Items in the tote are scanned again through the EPOS Yes Yes No

17. ASDA.com Important aspects of online supermarket’s Web site structure • Techniques for finding products • Search facility • Shop by aisles • Previous 3 • Personal shopping list • Checkout mechanism • Check delivery & order details • Make secure payments & submit orders • Check receipts • Shopping basket facility • Summarizing delivery details, good sin the basket and total spending so far. • Delivery booking • Delivery booking could be conducted anytime before, during, after shopping • Security • Website 100% secure, using 128 bit of encryption for payment • Customer help/guidance • Frequently Asked Questions page • Customer call center (phone and email) • Account information • Registration

18. ASDA.com’s Web Site

19. Conclusion/Vision

20. Current Challenges Facing ASDA.COM • Customer Loyalty • Customer learning curve too long • Customer’s basket size not large enough • Online customer has very low loyalty (high probability to leave) • Efficiency of Operation • Lack of integration between shop-floor systems and the picking operation, resulting in double scanning of picking processes, first at palm pilot and second at the EPOS (electronic point of sales or cashier) • The handheld terminals held by pickers with batch processes, where pickers needed to go back into the warehouse every time to connect the palm pilot to the PC to download the completed picking task and get the next batch of orders. These operations are time consuming and inefficient.

21. Plant DC Plant DC Store Agents based Adaptive (Business Communications) Network PORTALS / Exchanges ePC from RFID, UWB Inventory Agent Information Agent Replenishment needs Future shipping needs Immediate Replenishment needs Manufacturer HQ Customer Info Center Replenishment needs determined from RFID Tag info “Intelligent Signal” Transport Customer TLB Agent real time RFID data Store Orders Store Loads Status Store Paper Personal Care Confirmation Store Consumption Inventory Data DC to MFR DC Cotton Store Consumer Tissue Store DC Store Medical Health Care Store DC Raw material SUPPLIERS MANUFACTURER Store Customer’s DC Cross-Docking Agent Source: MIT

22. Questions 1 Please summarize the failure of dedicated fulfillment center business model in one equation and give your interpretation of that equation Answer: (Rev < Fix Cost + Variable Cost) Revenue Side smaller variety of product offerings with dedicated fulfillment centers and small coverage of the those centers Cost Side  High cost of building and maintaining a dedicated warehouse (fixed cost); high labor cost (variable cost) To make money TR > TC MR > MC

23. …Reading… Decoding…. ..Opening…. Questions 2 How to think of one technology that can help improve the efficiency of operation for ASDA.com Answer: RFID Technology can help integration between shop-floor systems and the picking operation because it can scan tagged product without line of sight and read multiple tags at once. Of course, the whole RFID system, including hardware and software, would cost a lot as well. Therefore company ASDA.com should carefully evaluate the pros and cons before implementing the new system