Discussion forum 2
Instructions:
Create an infographic or a poster to visualize your answers to these questions: (Be creative!)
1. What are benefits of an ERP system to companies like Fresh Direct?
2. What lessons do you learn from the failures of ERP implementation? If you had overseen the ERP projects at those companies, what could you have done to prevent these problems? (Pick 3 of your favorite solutions).
Instructions to upload: After you design your graphics, download and save it to your computer. For a picture file, then follow this instruction (Links to an external site.) to upload it to your reply. If you save it as a non-picture file, then follow this instructionLinks to an external site. to upload.
Websites for making infographics and posters: (Choose the free templates)
· Canva (Links to an external site.)
· Piktochart (Links to an external site.)
· genial.ly (Links to an external site.)
· Venngage Infographics
CHAPTER 12 ENHANCING DECISION MAKING
Management Information Systems 16e
KENNETH C. LAUDON AND JANE P. LAUDON
continued
CHAPTER 12 ENHANCING DECISION MAKING
CASE 2 FreshDirect Uses Business Intelligence to Manage
its Online Grocery
SUMMARY FreshDirect is the largest online grocery firm in the New York market, and one of
the largest in the country. With an estimated 300,000 customers in 2018, ordering
over 10,00 products and services every day, the company faced severe logistics and
management decision making issues. To solve these issues, FreshDirect adopted
a comprehensive enterprise data base system from SAP which utilized a number
of business intelligence applications to track orders and customers. The video
describes how the database system enables managers to control FreshDirect’s daily
operations and plan longer-term enhancements.
SAP Customer Success: Fresh Direct
URL http:
www.youtube.com/watch?v=y0ZxTFZPUSg; L=4:30.
CASE FreshDirect is an online grocer making more than 50,000 deliveries a week to
customers throughout most of New York City and parts of Long Island, Westchester
County, New Jersey and Connecticut. With an estimated $800 million in revenues
for 2018, the company seems to be one of the few examples of a start-up, online
grocery business actually being profitable. Most previous start-up, online groceries
have failed, while existing traditional grocery stores have been more successful
in online delivery from their local physical stores. For instance, a leading example
of dot-com excess was the flame out of online grocery start-up Webvan in 1999.
Webvan burned through $1.2 billion from investors in order to launch its online
grocery business in ten markets. Webvan went bankrupt in 2001.
MIS16_CH12_Case2_FreshDirect.indd 1 17/10/19 5:00 PM
http:
www.youtube.com/watch?v=y0ZxTFZPUSg
CHAPTER 12 , CASE 2 FRESHDIRECT USES BUSINESS INTELLIGENCE 2
continued
FreshDirect was founded in 1999—just prior to the burst in the Internet bu
le. The
usiness plan for online groceries was to focus on a high-density, single metropolitan
area like Manhattan in New York City, to offer farm-fresh food, and deliver it on-time
at prices about 15% less than local stores. A high-density u
an area meant fewer
delivery trucks would be needed, and average incomes were quite high in Manhattan.
Most investors and commentators thought the task difficult, if not impossible. For
many years it was a combination of both.
FreshDirect built a 300,000-square-foot headquarters and refrigerated packing plant in
2000 in the Long Island City section of Queens and made its first deliveries in 2002. In
2014 it built a massive 500,000 square foot new headquarters and food delivery facility
in the Bronx. In 2018 it opened a 400,000 square fulfillmnent center also in the Bronx.
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 provide the level of service it wanted, FreshDirect created
the most modern automated perishable food processing plant in the United States. While
most of the plant 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. FreshDirect butchers meat from
whole carcasses, makes its own sausage, cuts up its own fish, grinds coffee, bakes
ead and pastries, and cooks entire prepared meals. Cleanliness is an obsession— the
factory was built to exceed U.S. Department of Agriculture standards.
Despite attention to production detail at the plant, from 2002 until 2008 FreshDirect
urned through investor cash as it tried to execute on its business plan. According
to cu
ent CEO Richard Braddock, nothing went according to the plan. “We
oke
too many eggs. We showed up with thawed ice cream. We
uised the produce. We
delivered late. Our trucks were stuck in traffic. We missed items in orders. We didn’t
emediate service issues.” If a customer called to complain, there was no organized
way for FreshDirect operations people to find out what happened or to re-send the
order on another truck. According to Braddock, the companies ability to churn through
customers, attracting thousands of new customers, then quickly losing them once they
experience the poor service, provided most of the revenue. Attracting new users was
expensive, requiring extensive online advertising and discounting prices. 85% of the
customers ordered three times or less, then stopped using FreshDirect.
In 2008 Braddock took over as CEO (prior to this he was Board Chairman, and
prior to that a senior executive of Priceline.com). He ended the company’s policy
of adding new customers at any cost, and stopped offering discounts to first time
uyers. For two years, it simply stopped offering promotions to first-time buyers. And
the new customers simply stopped coming. The danger, of course, was that the old
customers would continue to exit, revenue would decline and the company would run
MIS16_CH12_Case2_FreshDirect.indd 2 17/10/19 5:00 PM
https:
Priceline.com
CHAPTER 12 , CASE 2 FRESHDIRECT USES BUSINESS INTELLIGENCE 3
continued
out of money. “The trick in this business,” Braddock commented, “isn’t to acquire new
customers, it’s to make them loyal.”
Braddock soon discovered that FreshDirect had no insight or visibility into its own
usiness processes. While the end goal was to deliver fresh food to thousands of
customers everyday on schedule, the exact location of orders at any moment was not
understood, or who was in charge of them. Mistakes were happening routinely, but there
was no record of how orders were moving through the logistics chain. Mr. Braddock knew
that FreshDirect needed a system of continuous feedback, a real-time database that
would follow every step—and misstep—of each business day, so that minor gaffes could
e resolved before they turned into big problems. The software would have to track plant
operations, along with data co
esponding to some 200,000 active customers at the time
and more than 8,500 products. It would take FreshDirect two years to build this database.
Braddock also decided to upgrade FreshDirect’s Web site, using the company’s internal
database to profile customers and serve a customized online experience. For example,
the site’s software can now analyze order patterns, reminding customers of their favorite
products and suggesting other items they might like, a marketing tool that has worked well
for Netflix and Amazon. In addition, the database recognizes whether a visiting customer is
a new, infrequent, lapsed or loyal customer—and serves appropriate messages and ads.
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
ing
orders to food-prep workers and packers. Managers are able “see into” the order and
fulfillment process at any point in order to identify problems. Alerts are programmed to
automatically alert managers to emerging problems.
Today, if a truck goes out 15 minutes late or if a container of jalapeño hummus is left
off an order, the problem can be traced to its source. Also, the real-time data reports
allow FreshDirect to shift its resources to areas of customer demand, beefing up
capacity based on the popularity of delivery zones and time slots, anticipating which
products might sell out and stocking up on them in advance.
The FreshDirect Web site is powered by BEA Systems’ Weblogic platform, which
can track customer preferences, such as the level of fruit ripeness desired, or the
prefe
ed 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
MIS16_CH12_Case2_FreshDirect.indd 3 17/10/19 5:00 PM
CHAPTER 12 , CASE 2 FRESHDIRECT USES BUSINESS INTELLIGENCE 4
of middle-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 their execution of the initial concept. In