Operations Management: A conventional “bricks and mortar”

Introduction

A conventional “bricks and mortar” grocery does not have an online presence, only a physical one. It is built on a face-to-face customer service, and usually always has a building for their operations. A “brick and mortar” grocery has advantages and disadvantages compared to an online operation, like Theorganicgrocer.com. First of all, their major disadvantage is the overhead. The cost of property, insurance, taxes and staff is much higher for a “brick and mortar” operation than an online operation.

The biggest advantage for a “brick and mortar” operation is customer security. To a customer, if a company has physical presence, it is seen as more reliable as the company is far less likely to fold overnight and disappear. Online operations on the other hand seem to have maximum exposure and increased profits.

Most people however, seem to be under the impression that running an online operation will be an easy task but it can be somewhat challenging. Online operations require less investment and more decision making.

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Decisions are practically the biggest investments made in the online world. Decisions on what the website should look like, how the products are going to be listed, in which way should the products be marketed would have to be made. Theorganicgrocer.com is based on market research and they focus on dependability, reliability, timeliness, quality, and price. They offer delivery, organic produce and customer specified date and time of delivery. Apart from that, they make sure that their website is constantly updated to reflect the current price.

They believe that the key to their success is the simplicity of use of their website.

Question 1

What are the comparative operational differences of a conventional “bricks and mortar” grocery to an online operation? What are the comparative value chains for each system?

Comparative Operations| Bricks and Mortar Operation| Online Operation| Display | Customers are able to physically touch and handle items that they are interested in buying.| Customers can only see pictures, graphics and texts that describe the product that they are interested in buying.| Expense| Usually require a bigger budget to lease space, rent property and to pay for other location expenses. | Smaller budget as they do not have to worry about building leases or property expense.| Location| Has a physical business location which limits the amount of customer traffic and foot traffic from shoppers, especially if they are not in a bigger city or metro area| They are not limited to one location and have no geographical boundaries.They can service local, national, and international customers.| Communication| There is face to face interaction with customers. | It is hard to communicate with customers through an online store.Online retailers may have a hard time getting information across to the customer and must be sure to answer all possible questions by the customers through text and graphics on the site so there is no confusion during the purchase.

| Technology | Uses the same technology that has been around for years and rarely changes.| Technology is constantly changing and there is a need to keep up and adjust accordingly. | Inventory| Has a large amount of Inventory on hand. Re-orders before the inventory runs out and there is a shortage of stock.| Has a lesser amount of Inventory on hand.Only re-orders when customers request for it.| Work Hours| Have traditional or at least set hours. This helps local customers know when the business is open.| Has varying or non-traditional hours. This is helpful when dealing with an international customer as it accommodates with their time zone. | Reliability| There is a sense of trust and reliability that comes with having your own brick and mortar store.Customers still feel safer buying from a store.| Customers do not feel safe as there are shady websites everywhere.|

In a “brick and mortar” operation, there are primary activities and support activities Primary activities are directly concerned with the creation or delivery of a product or service and can be grouped into five main areas: inbound logistics, operations, outbound logistics, marketing and sales, and service. Each of these primary activities is linked to support activities, which help to improve their effectiveness or efficiency. There are four main areas of support activities: procurement, technology development (including R&D), human resource management, and infrastructure (systems for planning, finance, quality, information management etc.).

The chain consists of a series of activities that create and build value. They conclude in the
total value delivered by an organisation. The ‘margin’ depicted in the diagram is the same as added value which expresses the way a business differentiates itself through configuration of its value chain. The drivers for product differentiation and value creation are policy choices (what activities to perform and how), linkages (within the value chain or with suppliers and channels), timing (of activities), location, sharing of activities amongst business units’ learning, integration, scale and institutional factors.

Eg: - Inbound Logistics (receiving and storing materials for distribution for production)

Registration

* Provide information

Eg.: -Categories Product
-Build Database
-Paypal
Operations (transforms inputs into finished products)
Eg.: Advertisement

Value Chain Model of E-bay
Sales and Marketing (promoting and selling the product)

Outbound Logistics (entails storing and distributing finished products)
Eg: -Removed Product Eg: -Before Sale Service Service (maintenance and repair of the firm’s goods and services) -Shipment -After Sale Service

The ‘Virtual Value Chain’

However in an online operation, value chain goes through three phases. The first phase is Visibility, where businesses co-ordinate, measure and at times control business processes. The second phase is Mirroring Capability, where physical steps in the value chain are substituted with virtual ones to make a parallel value chain in the marketplace with methods that are better, faster, more flexible, and lower at cost.

The third stage happens when companies use the flow of information in their virtual value chain to create new customer relationships by delivering value to customers in new ways. There are different approaches to changing the value chain and it is not necessarily shorter. This is called Intermediation. In some cases however, one or two links have been removed in the value chain. For example, a business that had previously sold to retailers via distributors might make a decision to sell direct automatically. This approach is called Disintermediation. In shortening the value chain, it reduces costs and there is a more responsive and efficient service.

Online businesses also at times, introduce new steps to the value chain as new players find fresh ways to add value to the process. This is known as Reintermediation. Examples of online operations that take this approach are shopping portals and electronic insurance brokers. The creation of new intermediaries that could not have existed before the arrival of the online business and the Internet is called Cybermediation. Cybermediation comes in categories, including Searching, Price Discovery, Logistics, Settlement and Trust. Examples of online operations that use cybermediation are comparison-shopping sites such as Kelkoo and bank account aggregation services like Citibank.

Theorganicgrocer.com bases their business on market research. The payments made by the customers are made online using a protected encrypted facility administered by a national bank. Apart from that, they have a vehicle route that makes sure that deliveries are maximized, and aggregated ordering of stock that only produces products that are ordered and purchased by customers. Theorganicgrocer.com also has a financial system which is a computer application that calculates all the generated profits and all its other needs. There is also another separate computer package that generates advertising material and mail-outs.

Question 2
What are the key processes in the online operation?

Providing Efficient Services

Online operations basically simplifies life for those who do not enjoy shopping, those who are too stressed from work to shop in supermarkets and stores by combining technology with business strategy. Online businesses provide efficient service that eradicates most of the steps in traditional shopping. Online shoppers go on websites while being able to view pictures and descriptions of the product. Customers also have the option of selecting specific items by name, to work from established personal shopping profiles or lists, and to browse through electronic aisles. Apart from that, online operations make it easier for customers by accepting payment in more than one method such as, credit cards, bank debit cards, electronic funds transfers, personal cheques, and money orders.

For example, eBay is a company operating on the Internet that allows for vendors of any kind to auction or sell merchandise of a variety of types. People and companies from across the world use eBay to sell items on the website. This allows people shopping for items to search through the various offerings, make bids, or opt to make direct purchases. It has become a great location for looking for hard to locate items, like collectibles. Many people also use the site to search for bargains on used items such as electronics, small household appliances and others. With the exception of a few illegal to sell things, at any given time eBay has a huge selection. Customers can shop by category and by specific item, or they can simply browse listings.

Assembling Online Orders

Apart from that, online operations will also assemble orders from online shoppers. There are mainly two common models for assembling the online orders, which are the warehouse and store model. A business usually uses a company-owned and operated central distribution warehouse to store, pick up and pack orders for delivery using the warehouse model. The warehouse model is popular among online operations as it reduces overhead costs, generates the lowest-fees possible to customers, and is very efficient. With the store model, orders are picked off the shelves of local retail stores or supermarkets. Grocery Gateway, an online grocery operation uses a direct-to-consumer online shopping model, which is the warehouse model as it uses a market centre to store, pick, and pack the ordered groceries for delivery.

The model has a supply chain management system that lets groceries be delivered directly from Grocery Gateway’s market centre to consumers’ doors. The company’s Customer Fulfilment Centre that provides an extensive selection of food, grocery products, and household goods, which improves the company’s inventory and delivery management. The centre also helps manage the company’s growth by allowing more space capacity and helping to improve the company’s accuracies by using technologically advanced radio frequency picking tools, conveyors, and scanners to make sure the processing of orders is fast and accurate. Delivery

Lastly, online operations offer delivery. Some online businesses have a delivery computer program that provides time management information and point-to-point directions throughout delivery. The program takes traffic conditions, rush-hour volume, road construction, and other uncertainties that can be predicted into account. Some companies require customers to be at home to wait for the delivery. Not many can be able to stay at home; therefore, other companies offer the option of unattended delivery.