Online Purchases and Delivery Service in NTUC Fairprice

INTRODUCTION

NTUC Fairprice Co-operative Ltd (NTUC) was founded in 1973 by the labour movement. Its first supermarket was opened in Toa Payoh in the same year. NTUC has now grown to become Singapore’s largest retailer, with a network of more than 270 stores comprising FairPrice Supermarkets, FairPrice Finest, FairPrice Xtra, FairPrice Xpress and Cheers convenience stores. NTUC also owns a Fresh Food Distribution Centre and a centralised warehousing and distribution company. Sales in 2013 were reported at more than S$2.6 billion.

NTUC also operates an online store where customers can order their groceries directly from their online store and have them delivered to their homes or destinations of their choice.

This paper explores the business operations management of NTUC in Singapore and the possible challenges NTUC may face in their online retail and delivery service. This paper also evaluates and recommends appropriate measures that NTUC should implement to overcome these challenges as well as the methods to measure the business performance of the new process.

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PART 1

NTUC’s Business Functions

NTUC operates with three core business functions to run the chain of supermarkets in Singapore; Procurement, Warehousing/Distribution and Retail. These functions are supported by Finance, Information Systems and Human Resources.

Figure 1: Process Flow of NTUC

Online Retailing and Delivery Service

NTUC currently operates an online grocery store from their website. According to their website’s Help section (2009), NTUC mentioned partnering a logistics service provider to provide the delivery services to customers.

In its website (2009), customers have the option to select their preferred date of delivery but the earliest they can receive their purchase is by the next working day.

NTUC currently does not provide delivery services on Sundays and Public Holidays. Delivery charges apply according to the order amount and additional charges will also be imposed to rearrange another delivery date if the customer is not present to receive the goods.

Challenges of Online Retailing and Delivery Service

Using the Soft Systems Methodology (Checkland, 1981), we identified some key challenges (Appendix 1) that NTUC may face for their online retailing and delivery service to their customers. Xing, Grant, MaKinnon and Fernie (2011) grouped these challenges broadly under availability, timeliness and condition.

Availability

•There is a lack of online tracking system. Timeliness
•Online grocers are unable to offer same day delivery to customers.
•Deliveries fail to arrive as promised.
•Distribution centres need to spend more time picking individual orders for customers. Condition
•There is a need to have delivery accuracy as products with shelf life, especially fresh food, would require cooling.
•Products are damaged during transit.

Literature Review of Challenges

Availability:

Xing, Grant, MaKinnon and Fernie (2010 and 2011) conducted postal surveys with chosen households and qualitative interviews with retailers, logistics service providers and experts for their research papers. Both papers found that one of the key challenges of online home delivery is to keep customers informed of the availability and status of their purchase. Without such online tracking systems, a big gap will be created between what the customers want to purchase and what they are offered eventually. Ruby and Zhao (2010) also identified that the most important attribute that affects customers’ satisfaction is the ability for online retailers to provide on-time delivery which would impact the customers’ decision to repurchase in future.

Ling, Yang and Jun (2013) also reported that customers feel that the unavailability of ordered products will affect their online shopping experience negatively.

Timeliness:

According to Ling, Yang and Jun (2013), most customers tend to get very frustrated when faced with the inconvenience caused by any delay in delivery. Customers feel the hassle of having to stay at home along with the uncertainty in waiting time for the delivery person to show up with their purchase.

Another challenge as reported by Starkey, A (2010) is that 17.5% of the customers had no one at home to receive their purchase during the normal delivery hours and 37.5% of them were only at home on some days. According to him, this translates to a 55% probability that customers run the risk of a failed delivery since there was no one available to sign their purchase.

Another challenge that is highlighted by Xing, Grant, MaKinnon and Fernie (2011) is the timeliness of the standard delivery schedule. According to the authors, retailers and logistics service providers kept the delivery charges low so as to remain competitive as providing prompt delivery services would usually cost a premium for customers. Such measures usually result in a standard 3 to 5 business days for delivery causing a relatively low level of customer satisfaction in this area.

Condition:

Based on the findings by Xing, Grant, MaKinnon and Fernie (2011), customers’ satisfaction level drops when their purchases are delivered wrongly or the orders are incomplete. Another factor that impacts their satisfaction level is the condition of the goods being delivered. As in the case of perishable items, customers expect their purchase to be delivered fresh.

Operations Strategy Perspectives for NTUC

Using the four perspectives on operations strategy (Slack, N., Brandon-Jones, A. and Johnston, R, 2013: Ch 3 Pg 73 – 85), we seek to understand the different perspectives that will help us recommend the appropriate solutions for NTUC in its online retail and delivery system.

Figure 2: The Four Perspectives on Operations Strategy (Slack, N., Brandon-Jones, A. and Johnston, R, 2013: Ch 3 Pg 73 Figure 3.3)

Top-Down Perspectives:
According to NTUC’s website (2009), its vision is “to be Singapore’s leading world-class retailer with a heart”. NTUC also strived to “provide its customers with the best value, quality products and excellent service, be a preferred employer, to moderate the cost of living in Singapore, and serve the needs of our members, the labour movement and the community.”

Bottom-Up Perspectives:
According to Song, L., Cherrett, T. and Guan, W (2011), besides inconveniencing the customers, distribution centres also incur high costs whenever there are failed deliveries. The authors suggested that there are environmental costs to be considered for every added trip to the customers. This suggests that the CO2 emissions caused by these repeated trips would increase. NTUC should work closely with its internal Warehousing/Distribution team to understand these concerns before developing the strategy forward.

Market Requirements Perspectives:
Various authors (Xing, Grant, MaKinnon and Fernie,2010 and 2011; and et al) identified that customers expect to be kept updated of the status of their purchase; prompt delivery service as well as having purchases delivered to them in good conditions.

Operations Resources Perspectives:
According to Xing, Grant, MaKinnon and Fernie (2011), a high operational cost would make retailers cost sensitive. Technology advancements require monetary investments and yet retailers need to strike a balance between home delivery cost and the amount they charge their customers. Therefore, NTUC should explore how it can optimize its operations functions and resources to continue delivering the values customers expect.

Appropriate Solutions for NTUC

Based on the challenges identified and with the understanding of the 4 perspectives that NTUC need to consider, the following are some of the recommendations that NTUC should adopt to improve on their online retail and delivery system:

•Upgrade the online order system
•Implement online tracking system
•Incorporate a collection / delivery point

Upgrade the Online Order System:
According to Ruby, R.D. & Zhao, M. (2010), NTUC should, in order to satisfy its online customers and ensure that they return to the retailer to purchase again, ensure that their website should be able to control conditions where a product is out-of-stock. The online website should provide updated inventory information of the product to avoid customers becoming unhappy over a failed purchase. It is also important to ensure that the descriptions of the product are authentic and exactly matches the intended product.

NTUC should provide more delivery options (Xing, Y., Grant, D.B., McKinnon, A.C. & Fernie, J., 2011) and consumers who are willing to pay a premium for these choices could select their preferred delivery options with more specified dates and times. The authors believed that the premium delivery charges customers pay will eventually offset the increased in delivery cost of NTUC or their appointed logistics service provider.

Implement Online Tracking System:
Xing, Y., Grant, D.B., McKinnon, A.C. & Fernie, J. (2011) concluded in their report that setting up an online tracking system is very important as it allows customers to keep track of their purchases. If retailers are using a logistics service provider which is the case for NTUC, a link to the logistics service providers’ tracking system should also be provided.

The authors also suggested that retailers can adopt software applications that operate alongside their existing ordering system. These software applications are able to provide timely contact with the customer by email or text messages during the time of fulfillment to keep customers updated of their order status at appropriate times. The most important messages are at the point when their purchases are ready to be delivered with confirmation of the delivery date and time.

Having a good tracking system not only reduces the probability of first time delivery failures, Edwards, J.B., McKinnon, A.C. & Cullinane, S.L. (2010) also reported that reducing repeating trips will significantly reduce the CO2 emissions. In their findings, a standard home delivery for a non-food item would be allocated 98 gCO2. Therefore, striving to improve on the home delivery system would also help reduce any harmful impact to the environmental.

Incorporate a Collection/Delivery Point:
To reduce the number of unsuccessful home deliveries to customers, NTUC should implement a network of collection/delivery points (Song, L., Cherrett, T. & Guan, W., 2011) as alternatives to the delivery addresses in their system. This means allowing customers to choose a nearest collection/delivery point where they would like to pick up their purchase from if they happen to be away when the delivery person arrived. Customers can also have the option to select the collection/delivery point as their delivery destination if they are sure they will not be home to receive their purchase. Retailers can definitely benefit from this implementation as it reduces the number of re-delivery attempts.

PART 2

A Perspective of the New System

We use Soft Systems Methodology (Checkland, 1981) to have a systematic view of the new system (Appendix 2). In the process, we also identified two potential problems that may arise from this new system.

Behjati, S. and Othaman, S.N. (2012) said that one of the key drivers of online shopping is trust and reliability. If customers do not trust the idea of shopping online, it would take more effort for NTUC to try to switch these customers to online customers. Another potential problem is an upgraded online ordering system would take up more internet bandwidth in NTUC. Therefore, the retailer must ensure that there is sufficient bandwidth (Ling (Alice) Jiang, Yang, Z. & Jun, M., 2013) to allow customers to search its online store seamlessly.

NTUC’s “As Is” Process

In the Help section of NTUC’s website (2009), a customer simply need to log into their account, select the products and the required quantity before adding into the shopping cart. Once the purchase is confirmed, an email will be sent to the customer instructing him/her of the delivery information. According to the website, the earliest date customers can receive their purchase is by the next working day. NTUC currently does not provide delivery services on Sundays and Public Holidays. Delivery charges apply according to the order amount and additional charges will also be imposed to rearrange another delivery date if the customer is not present to receive the goods.

A clearer version of the “as is” process of NTUC is attached in Appendix 3.

Figure 3: “As-Is” Process of NTUC

NTUC’s “To Be” Process

With the proposed upgrading of the online ordering system, online tracking system and implementing a collection / delivery point for NTUC, the “to-be” process is drafted in Figure 4 with a clearer version attached in Appendix 4.

Figure 4: "To-Be" Process of NTUC

Freeman, M. and Freeman, A. (2010) emphasized the importance that for the online ordering system to work, all products in the retailer’s inventory must be displayed. Out-of-stock products must be clearly indicated so that customers can make decisions on the spot to select alternative products. Rose, S., Clark, M., Samouel, P. and Hair, N. (2012), in their study, also supports this by saying that it is important for the retailer’s website to be easy to use. An overly complex navigation and information overload will reduce the probability of customers returning to patronize the online store.

Omar, M., Bathgate, I. and Nwankwo, S. (2011), in their research, considered that when a customer is well-provided with order information and a clear estimate of the product arrival information, customers will be more certain of what they ordered and when they can expect their products to be delivered. It is therefore recommended for NTUC to set up an online tracking system for the purpose of allowing customers to trace their products any time of the day.

Edwards, J.B., McKinnon, A.C. & Cullinane, S.L. (2010) provided that failed deliveries can cause a lot of inconvenience and highly uneconomical for both the customers, logistics service providers and retailers. According to the studies, a 100% successful first-time delivery would incur a CO2 emission of 98g for urban deliveries. This, however, increases to 110g of CO2 emission for a 12.5% delivery failure. Song, L., Cherrett, T. & Guan, W. (2011) suggested reducing failed deliveries by using a network of collection / delivery points (such as in petrol stations, convenience stores, post officers etc) in nearby neighborhoods as alternative delivery destination. Keeping failed deliveries to a low number would limit the amount of CO2 emission to the lowest possible level.

In this “To-Be” process, an upgraded ordering system coupled with an online tracking system for customers to track their parcels and finally providing an alternative pickup location instead of having the hassle of arranging for future delivery trips will improve the transactional process which is according to the expectations of the customer. This will improve their perception of NTUC.

PART 3

In Part 1, we identified the challenges NTUC faced when operating the online retail and delivery system. Appropriate solutions were put up with the aim to improve these challenges. Part 2 looked at the changes that need to be made to the business process. In Part 3, we will be looking at how NTUC translate performance objectives into operation priorities and subsequently, how NTUC measures its performance and recommend further improvements to ensure the success of the new system.

Implementing a Performance Measurement System

For NTUC to succeed into achieving its performance objectives, a performance measurement system needs to be put in place. The Balanced Scorecard (Kaplan R.S. and Norton D.P., 1992) will be used for this purpose. Besides deciding and measuring performance, Sharma, A. (2009), in his research findings reported that the balanced scorecard can also help NTUC manage the strategies that require implementation and improvement so that the retailer’s long term goals are meet.

Valmohammadi, C. and Servati, A. (2010) stated that it is very important to allow all managers, in this case all the Business Functions Managers in NTUC, participate in the performance measurement process. This is because implementation at various functions requires the expertise and active participation of every functional levels in company.

Balanced Scorecard of NTUC

NTUC should start with an assessment of the company’s mission and vision; and working together with its functional managers identifies key objectives. SWOT analysis can be performed to eliminate the weaknesses and threats that NTUC is exposed to. NTUC will then develop the balanced scorecard (Appendix 5) which according to Sharma, A. (2009) helps each function teams understand and work towards its shared vision.

The balanced scorecard depict the objectives, measures, targets and appropriate initiatives that are put in place to assess the performance around 4 broad areas (Kaplan R.S. and Norton D.P., 1992), namely financial, customers, learning and growth and internal business processes.

Financial Perspectives:
The reason why NTUC would take up the recommendations to upgrade the suggested systems is ultimately to achieve financial returns. Without a doubt, the financial perspectives of this balanced scorecard would focus on measuring the revenue, profit and also to increase the online market share of the retail business. The indicator for revenue and profit can be retrieved from NTUC’s Annual Report.

NTUC’s growth average revenue growth for the past 3 years average 8.91%. Hence, a 9% growth is recommended as target for the company.

Figure 5: Deriving the Revenue Targets for NTUC (Source: NTUC Fairprice Annual Reports)
Based on the Annual Report, the profit achieved has been consistently at approximately $120 million for 2010, 2011 and 2013. Hence, using these 3 years as benchmark, we propose NTUC to set a target of maintaining the profit level at S$125 million.

Figure 6: Deriving Profit Margins for NTUC (Source: NTUC Fairprice Annual Reports)

According to a market report in UK (Thomas, J., 2010), sales in online retailing is expected to increase by 34.4% in 2014 compared to 2013. Online sales are also expected to increase to 12.4% of the total retail market. Basing on this forecast, NTUC could consider targeting to achieve an increase an online market share of 12% for 2014.

Figure 7: Forecast UK Online Food and Drinks Market by Value, 2009 to 2014 (Source: just-food)

Customers Perspectives:
From the customers perspective, NTUC decided to upgrade its online retailing and delivery process is so that it could satisfy its online customers (Ruby, R.D. & Zhao, M., 2010) and ensure that they return again for their next purchase. Hence, it is necessary that NTUC tracks its performance on customers’ usage of its online site.

With an easier to surf online ordering system that NTUC would be investing, it becomes necessary for the retailer to track its customers’ traffic flows on the internet (Gunawan, G., F, E. & King, M., 2008) as this gives the company an indication if it is successful in building customers’ awareness and loyalty of its online retail service. In their study, Edwards, J., Makinnon, A. and Cullinane, S. (2011) reported that 38% of internet users access online food and grocery websites and this is likely to increase another 66% in he near future to 63%. We recommend targeting a 66% increase in online visitors as a performance measurement.

Another performance measure would be to generate a report to derive the ratio of returning customers against its total online customer base. A target of 25% increase in online customer base is recommended which is in line with Jessica, L. (2011)’s report that the number of customers at NTUC has increased by an average of 25% every year.

Learning and Growth Perspectives:
The objectives on learning and growth focus on increasing the employees’ knowledge know-how of the new improved systems. With the implementation of the online order and tracking systems, NTUC need to ensure that its staffs undergo adequate trainings (Hoi, Y.C. and Alex W.H. Chan, 2012) to keep themselves up-to-date of what the new technology is able to achieve which allows them to handle challenges that arised in the future. As recommended by Lai, W.H. (2010), NTUC should budget 1% of its annual payroll to staff training and development.

With improved system knowledge, NTUC’s employees would be able to make suggestions on how the business processes can be improved (Wilson, G., DuPlessis, A. and Marx, A., 2010). Adequate trainings (Tan, K. & Newman, E., 2012) also ensure NTUC’s employees are able to increase their productivity levels and NTUC should seek to achieve a 20% (Pollitt, D. 2012) increase in orders per head every month.

Internal Business Processes Perspectives:
In order to ensure the successful implementation of the proposed new systems, NTUC needs to ensure its internal functional teams are able to work seamlessly together. To measure the performance of its internal business processes, we propose NTUC to track the delivery success, product returns and ultimately the level of CO2 emission.

Unsuccessful deliveries can be very costly and inefficient for companies. Edwards, J., Makinnon, A. and Cullinane, S. (2009 and 2011) reported that approximately 30% of home deliveries failed for the first time and that between 25-30% of online purchases were returned to the retailer as compared to 6-10% in traditional shopping environments. Therefore, with implementation of the online ordering and tracking system, NTUC targets to achieve at least 80% success rate in its first time delivery and less than 25% returns of customers’ orders.

Another recommended measure is to reduce the CO2 emission of NTUC’s delivery services. Assuming that 25-30% of the online purchases were returned as mentioned above by Edwards, J., Makinnon, A. and Cullinane, S. (2009 and 2011), the CO2 emission according to Edwards, J.B., McKinnon, A.C. & Cullinane, S.L. (2010) is 123g. NTUC should set its performance measurement target to reduce CO2 emission to 110g.

Figure 8: Emissions (gCO2) per item including Failed Delivery Rates (Source: Edwards, J.B., McKinnon, A.C. and Cullianane, S.L., 2010)

CONCLUSION
In conclusion, this paper analysed the business operations of NTUC in their online retail and delivery service. Key challenges relating to availability of the intended purchased products online, timeliness of delivery and the conditions of the products as a result of the delivery was identified.

Adopting a business operations management approach, we recommend NTUC to implement an integrated online ordering and tracking system to improve the retail business processes and eventually to increase customers’ confidence in its online retail business. At the same time, to ensure the purchase quality is well-maintained for the customers, NTUC should seek to reduce its delivery failure rates for the home delivery service. Establishing a network of collection / delivery points could help achieve the objective.

Finally, this paper proposed using the balanced scorecard as a performance measurement tool to ensure that all business functions and managers work towards achieving NTUC’s strategy and vision of this new system.

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