Course Project Business Description and Components

*Before you begin this assignment, make sure that you carefully read the instructions outlined on the Project Introduction page of this module. Make sure to also read the case study “Online Groceries” before you begin. You are a management information systems consultant for the online grocery store that you’ve chosen for your project. To begin your project, please do the following:Provide a description of the companyExplain the company’s purpose, mission, and structure.Research information on the web and the Rasmussen Online Library to gain further insight into the company.Describe the organization’s system in terms of inputs, processes, and outputs.Describe how the company is organized, its people, and technology features; also, the importance of an MIS system to the company.Your paper must be a minimum of 3 full pages long.You will need to include a minimum of 2 credible sources for your research, with 1 being an academic source, such as a book or an academic scholarly journal. Academic scholarly journals can be accessed through the Rasmussen Online Library. For business sources, ProQuest and EBSCO Host are helpful.Include an APA formatted title page and reference page.*Remember to use proper tone in your paper. You are speaking from a “consultant” point of view. Your audience is the Leadership Team for the online grocery store.*Make sure to write your paper utilizing proper APA formatting guidelines, and to include an APA formatted title page. Use NoodleBib to document your sources and to complete your APA formatted reference page and in-text citations.
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Project Overview
In this course project, you will play the role of an MIS consultant for an online grocery store. You will
address the necessary information technology needs and projects that the company must undertake to be
successful.
For your project, you will need to choose one of the following companies:
•
•
Peapod.com – www.peapod.com
Safeway.com – www.shop.safeway.com
Both online stores will require you to put in a zip code to browse their website. You will need to “browse
as a guest.” Before browsing as a guest, you will need to type in a zip code. Please use the following zip
codes:
•
•
For Peapod, use – 60446
For Safeway, use – 90210
Case Study
Please read the following case study before you begin your project.
Online Groceries
Due Date
There will be individual assignments along the way. The assignment and the module they are due are
noted in bold on the time line below. As you can see, your first assignment “Business Description and
Components” is due this module.
Time Line
Module
Assignment
01
Introduction
Business Description and Components
02
Strengthening Web Presence
03
Ethics and Security
04
Balanced Scorecard
05
Implementing New Technology
Requirements
Required Format
•
•
Each paper should be double-spaced in a Word document.
Use proper APA formatting guidelines (Times New Roman, 12 pt. font, 1st sentence of each
paragraph indented).
Reference Page
Cite all references using APA style. You must cite four different references. A Maximum of two references
may be from the Internet, but should be from credible sources such as a university or government
website. Please note, Wikipedia is not considered a credible source. Choose a minimum of 2 academic
sources for your research, such as a book (other than your textbook) or an academic scholarly journal.
Academic scholarly journals can be accessed through the Rasmussen Online Library. Databases such
as, ProQuest and EBSCO Host are helpful. Use NoodleBib to document your sources and to complete
your APA formatted reference page. Access NoodleBib by navigating to the Library page (Student
Portal>Campus Tools> Library Resources) and clicking on the NoodleBib link in the Library Links area of
the Library page or Click on the Resources tab in your online course and click on NoodleBib Online
Academic Guide in the Library Resources box, then click Noodle Tools – LOG IN NOW.
*A note about credible sources: Credible sources are reliable, accurate, and trustworthy. These
sources are written by authors respected in their fields of study. You want to identify sources where the
author of the article is listed, if they’ve referenced other information, the sources should be cited so that
you can check for the accuracy of and support what they have written. Wikipedia is not considered a
credible source. For more information on credible sources, please visit the Rasmussen Online Library.
Evaluation
Each assignment is evaluated and graded independently. Your instructor will provide specific grading
criteria for each step of the project prior to its due date.
E-commerce Challenges: The Story of Online Groceries
What could be easier than ordering all your groceries online and having them delivered to your
doorstep at a time you choose? No more driving to the store, wasting gas and time, pushing carts
down aisles, jostling with over-anxious shoppers, or waiting in the check-out lines. For those who
don’t mind giving up the “social experience” of shopping, as well as aspects like thumping melons
to test for freshness, tearing off a shock of sweet corn to smell for mold, or sampling a cut of
salami before ordering, online grocery shopping provides a compelling value proposition. In 2013
an ­estimated 12.5 million online shoppers will generate $5.9 billion in online ­grocery sales in the
United States at over 1200 online grocers.
Online grocery sales have grown 75% since 2006, and are expected to growata around 9% annual
through 2016 to an estimated $9 billion. The United Kingdom has the largest online grocery
market at around $10 billion in sales. In fact, online grocery sales are growing at nearly three
times the rate of traditional grocery sales offline. In a recession, driven by the high cost of restaurant food, as well as gas for cars, consumers are cooking at home more often, and looking for food
deals and convenience online. Online recipe sites are seeing a doubling of traffic. Still, there’s a lot
of room for future growth: online groceries still account for less than 2% of all grocery sales in the
United States.
There are three online grocery business ­models: start fresh, leverage out, and local build. The
history of large-scale online grocery begins with the “start fresh” approach of Webvan, launched in
1999 with $400 million of venture funding, and another $600 million of stock sales to the public.
Webvan’s business plan was audacious: start a totally new nationwide, online, ­grocery distribution system serving 10 cities at first, and expanding to additional major cities in a few years. When
Webvan flamed out in July 2001 after having spent almost $1 billion trying to build the Web’s
largest online grocery store based on huge distribution warehouses in seven U.S. cities, most
pundits and investors thought the entire online grocery business model was either a failure or a
fraud. Facing the costs of building an entirely new distribution system of warehouses and truck
fleets to compete with existing grocery businesses, not to mention the expense of marketing,
and a huge IT infrastructure, Webvan compounded its problems by ­offering below-market prices
and free delivery of even small orders at just about any time of the day or night in urban areas
often clogged with traffic. Webvan is generally considered to be the largest and most spectacular e-commerce failure in history. That said, it was also ahead of its time: very few customers felt
continued
comfortable ordering “high-touch” goods online in 2001. Today, the ­culture of online purchasing
has changed.
Despite Webvan’s failure, the pundits have proven to be wrong again. Online grocery is alive,
well, growing rapidly, but with different aspirations and business models. Pundits did not count
on Manhattan’s FreshDirect (and hundreds of other local niche online grocers) or the ability of
­traditional grocery chains to move into the ashes of the online grocery business to create solid,
profitable businesses. These firms are learning how to exploit this potential market with ­profitable
business models.
The largest online players today are traditional firms such as California’s huge Safeway Stores,
APSupermarket.com, and Shoprite.com in the North East, and Royal Ahold (Dutch owner of the
U.S. Stop & Shop and Giant food stores, among others, and the Internet firm Peapod.com). Big-box
discount stores such as Costco, BJ’s, and Sam’s Club also offer online grocery services. Sam’s Club,
the Wal-Mart-owned big box chain of stores, offers customers a “Click N’ Pick” service: order
online, pick it up at the nearest Sam’s Club store, and you won’t even have to stand in line to pay for
your ­groceries. These firms are leveraging their existing nationwide distribution and supply chain
systems, as well as their thousands of local stores, to provide shoppers with the opportunity of
selecting what they want online, and then picking it up at the local stores or ­having it delivered by
the local stores. These U.S. firms followed the lead of the successful British grocer Tesco. Tesco is
the largest chain of supermarkets in Britain and opened an online division in 1990. It is considered
to be the largest and most successful online grocery store in the world in 2013.
Peapod expects to generate $495 million in 2012 and grow at a 9.1% sales CAGR from 20122016. While Peapod is traditionally known for operating a ‘best-in-class’ home delivery service,
the retailer has evolved its model to include QR-Code driven mobile shopping walls, and grocery
pick-up – using Chicagoland as its testing ground. Something must be working. Peapod announced
that it would launch more than 100 virtual grocery stores at commuter rail stations in Boston,
Connecticut, New York, New Jersey, Philadelphia, Washington, D.C. and Chicago. In a virtual
grocery store, pictures of products are posted on a large public LCD display with QR codes underneath. Shoppers use their smartphones to scan the QR codes of the items they want. The products
in their virtual shopping carts are delivered right to the customers’ homes at their selected delivery
time. No need to waste time on the Internet or, worst case, actually go to a physical store.
In the United States, Safeway’s wholly owned subsidiary GroceryWorks.com provides online
shopping and delivery services for ­Safeway stores in California, Oregon, Washington, Arizona,
Maryland, Virginia, and the District of Columbia; and for Vons stores in Southern California and
Las Vegas, Nevada. Customers register online, entering their ­personal information, including their
frequent shopper cards. They are shown lists of recently purchased items to speed selection. The
prices of goods are the same as those in the stores. Safeway has so-called “pickers” roam the aisles
of nearby stores using a computerized picklist that directs them through the store in an ­efficient
pattern, and even specifies the order of packing goods into bags. The orders are put into a van and
delivered to the customer within a two-hour window for a fee of $10.
continued
Chapter 10
Learning Track 1
3
At Royal Ahold’s Peapod.com, which serves its Stop & Shop and Giant Food store customers in 24
regional markets, shoppers can view both their online ordering history and their offline ­purchases
at nearby stores during the previous four months. Peapod is the largest online grocery in the
United States. Its Web site also features a shopping list that displays items in the order they can
be found at the customer’s local store. Customers have the option of ­ordering online and picking
it up at the store, or printing the shopping list and taking it to the store. The average online order
is about $168, much larger than in traditional grocery stores. For these traditional supermarket chains, the value being offered to customers is convenience and time savings at prices only
­marginally higher than self-shopping.
FreshDirect exemplifies the third and most common online grocery business model: local build.
­ rocery (St. Paul),
Other well-known local niche players include Inland Marine (Houston), Gopher G
and Greenling (Austin), all with revenues greater than $1 million. These local online grocers focus
on knowing their local customers, high-quality fresh produce, low costs, and convenient delivery.
In July 2002, Joe Fedele and Jason ­Ackerman founded FreshDirect as a new kind of high quality
and high-tech food preparation and delivery service in Manhattan, and raised $120 million in
venture funding. Operating out of a 300,000-square-foot plant in Queens just across the river from
Manhattan, FreshDirect trucks deliver groceries to densely populated Manhattan, Brooklyn, and
Queens at prices 25% below what most New York grocers charge. It charges a $5.49–$6.79 delivery fee, depending on location and size of order, and requires a minimum order of $30. The value
­proposition to c­ onsumers is convenience and time savings, but also higher quality at lower prices.
How can FreshDirect succeed at these prices? One answer is that FreshDirect concentrates on very
fresh perishable foods and stays away from low-margin dry goods. For instance, the FreshDirect
Web site features around 3,000 perishables and 3,000 packaged goods compared to the typical
25,000 packaged goods and 2,200 perishable items that a typical grocery store offers. To do so,
FreshDirect ­created the most modern automated perishable food processing plant in the United
States. While most of the factory is kept at 36 degrees to ensure freshness and quality control,
dedicated areas vary from a low of minus 25 degrees for frozen foods to a high of 62 degrees in
one of its specially designed fruit and vegetable rooms. At the factory, FreshDirect butchers meat
from whole carcasses, makes its own sausage, cuts up its own fish, grinds coffee, bakes bread and
pastries, and cooks entire ­prepared meals. FreshDirect employs the same “make-to-order” manufacturer-direct philosophy as does Dell. Cleanliness is an obsession- the factory was built to exceed
U.S. Department of Agriculture standards.
Critical to the success of FreshDirect is a powerful IT infrastructure that seamlessly ­connects
online customers to inventory, billing, and then to truck delivery. The firm uses SAP software (an
enterprise resource planning ­system) to track inventory, compile financial reports, tag products
to fulfill customers’ orders, and precisely control production down to the level of telling bakers
how many bagels to cook each day and what temperature to use. It uses automated carousels and
conveyors to bring orders to food-prep workers and packers. The FreshDirect Web site is powered
continued
4
Chapter 10
Learning Track 1
by BEA Systems’ Weblogic platform, which can track customer preferences, such as the level of
fruit ripeness desired, or the preferred weight of a cut of meat. FreshDirect also uses NetTracker,
Web site traffic and online behavior analysis software, to help it better understand and ­market to
its online customers. At peak times, the Web site has handled up to 18,000 ­simultaneous shopping sessions. The final piece in the formula for profit is a supply chain that includes dealing directly with manufacturers and growers, thus cutting out the costs of m
­ iddle-level distributors and the
huge chains themselves. FreshDirect does not accept ­slotting fees (payments made by manufacturers for shelf space). Instead, it asks suppliers to help it direct-market to consumers and to lower
prices. To further encourage lower prices from suppliers, FreshDirect pays them in four ­business
days after delivery, down from the industry pattern of 35 days.
FreshDirect was profitable for the first time in 2008. The key to profitability has been improving
its execution of the initial concept, and a rededication to customer service, just plain listening to
customers. In recent years, FreshDirect has introduced the following “customer centric” ideas:
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Produce: Employed experts to rate the freshness of all produce and set prices accordingly.
This reduces customer concerns about not being able to feel the product.
Packaging: Eliminated the use of foam, and reduced the number of cardboard boxes by 1.5
million in response to customer complaints.
Favorites: Developed a customer ­relati-onship management system that tracks each
customers’ past purchases, and presents them on-screen for re-ordering. Increased order
size by 10%.
Recommender system: Added a YMAL (You-Might-Also-Like) cross-selling tool, which
recommends products that other customers purchased. Added 5% to total revenue.
Rating systems: Developed a rating system for its own produce and seafood that allows
grocers to showcase their best goods and customers to decide what “looks” good online.
Order pattern analysis: Instituted a system to reminds customers of their favorite products
and e-mails them when the system thinks they might be running out.
Computer-driven truck packing: Created to handle over 45,000 deliveries a week in the New
York Metro area.
Web apps: FreshDirect introduced an iPhone app that allows mobile shoppers full access to
its complete Web offerings. More than 65% of FreshDirect’s customers have smartphones, and
50% have iPhones.
With these features and direct mail campaigns, FreshDirect has increased customer loyalty and
reduced its churn rate (the number of ­customers who leave the service). Currently, 65% of its total
customer base of around 600,000 active customers are repeat, loyal ­customers, whose average
order size is over $120, and who contribute 80% of FreshDirect revenues. Word among investors
continued
Chapter 10
Learning Track 1
5
is that FreshDirect is planning an IPO in the near future, causing many to roll their eyes as they
remember the history of Webvan in early part of the decade. Is this time different? The technology
has changed drastically, there’s more bandwidth to explore food products online, and the culture
has shifted to using smartphones as mobile shopping devices. Best of all, FreshDirect is working
from a financial perspective. Although a private company that does not issue financial information,
analysts estimate that in 2013 FreshDirect will generate over $450 million in revenue, and expand
its customer base to over 600,000 customers in the New York and Philadelphia metropolitan areas.
Copyright Notice
Copyright © 2013 Kenneth Laudon and Jane Laudon.
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