Supply chain considerations for electronic grocery shopping

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Doctoral thesis (monograph)
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Dissertation series / Helsinki University of Technology, Industrial Management and Work and Organisational Psychology, 2003 / 3
The main hypothesis of the dissertation is that "e-grocery with home delivery can be more efficient than supermarket retailing handling a similar volume of sales". The e-grocery business should be seen as an assembly industry producing shopping baskets. Only in this way can the new electronic channel work efficiently. The e-grocery business is usually seen as a supermarket copied into an electronic form; it is seen only as an opportunity to buy products. Instead, the starting point of operational design should be the real needs of a household and take into account the possibility of adding new services for the customers. One of the conclusions of this research is that the operational costs of a distribution centre can be lower than those of a supermarket. Store-based order picking is less expensive than using a specialised distribution centre when turnover is less than one million euros. A turnover of more than 3 million euros means that a dedicated distribution centre appears to be more efficient than store-based picking. However, the distribution centre has to be purpose-built for shopping basket assembly with a reasonably stable workload. A combination of store-based picking and a specialised distribution centre has been introduced as an opportunity to create gradual low-risk growth in the e-grocery business. It seems that efficient home delivery can be achieved even with a moderate market share. Unattended reception is very important for the overall cost structure of the supply chain and enable service models that give flexibility in route planning and optimisation. However, the investments that unattended reception requires should also be taken into account. The cost efficiency of a home delivery service model can be described by the average mileage driven per order, which directly correlates with the number of stops per hour. New efficiency indicators are needed to measure the efficiency of the e-grocery business. Sales per distribution centre and sales per square kilometre are useful indicators when choosing home delivery service models and potential market areas. The most useful factor is sales per square kilometre. The critical sales volume appears to be 200,000 euros per square kilometre per annum. This sales volume can be achieved with 25 four-person households per square kilometre with 90 percent purchase loyalty. E-grocery retailing is a very local business and store-based picking is a good alternative if fast roll-out with a low level of investment is required. A distribution centre-based operation is potentially much more efficient, but it is a slower approach and needs more investment. Whatever service model is chosen, it should first be made to work in a fairly compact geographical area and then copied to new areas.
Internet, grocery, shopping, logistics, supply chain
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