Individual Assignment – Video Review

ECO415
Economics

NAME:
MOHD BERNY WONG

MATRIKS NUM:
2017314653

SUBMITTED TO:

Puan Nor'aisah Ahmad

DATE:
28 MAY 2022

VIDEO LINK:
https://www.youtube.com/watch?v=fnIrwrCq_4Q

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Video Summary

Basically, the video explained FreshDirect’s overall operational processes and management
throughout their business in the e-commerce platform and how far they have become since
day one of operation. The video particularly emphasized their operation on how 3 million
grocery items are delivered to homes every week. Originated from New York, FreshDirect’s
process of shipping highly customized grocery boxes from local farmers straight to
customer’s doors. Such a transaction only involves one particular pitstop, the huge
warehouse facility that puts everything accordingly, indirectly, reducing operating costs.
However, note that FreshDirect is one of the top players in the online grocery industry and
having millions of goods coming in and coming out simultaneously will be such a hassle and
a nightmare for their logistics team if no proper operation management is implemented.

With such a complexity, FreshDirect employed 3 200 workers and advance AI system
technology to get it all done in time. The pandemic has definitely put them under pressure
throughout their business as orders are spiking and people are scared to go outside. On the
bright side, it puts FreshDirect way ahead as their business grows tremendously. How did
they do it? A team from the Insider visited their warehouse facility and saw how they manage
their on-time delivery in the face of pandemic demand. FreshDirect only uses three simple
supply chain steps, from the farm to the warehouse and directly to the consumer’s house.
How did the purchasing order work? Just like a regular grocery store, customers can simply
choose their items and add them to carts, pay for them and deliver. Furthermore,
FreshDirect caters to anywhere from 400 – 600 producers, from fresh vegetables, seafood,
meats and ready-meals from local and international farmers.

How do the inbound processes work? Firstly, the groceries’ arrival will enter the warehouse’s
receiving area. Palletizing them, labelling them as necessary. The labelling process signifies
where the goods should go to avoid wrong orders and storage locations. Storage or staging
areas in FreshDirect vary according to their type of food. For example, meats and fish will be
stored in fridges areas, whereas vegetables are stored in temperature-controlled areas to
maintain their freshness. Which is why the labelling in the first step is extremely important.
Besides the freshness benefit that the customers get, FreshDirect also benefits from it,
whereby less waste is being produced as goods will only be taken out when there are orders
and not being exposed as normal grocery stores do. Less waste means less money to
spend on waste management. On top of that, FreshDirect takes seriously on freshness
because it extends its shelf-life up to 7 days.

After the inventory rooms, they processed everything according to the orders, like kitchens
and bakery. Surprisingly, FreshDirect not only receives goods but also manufactures foods,
from cutting ingredients to preparing and cooking ready meals. However, all these cutting
processes are only done when there are orders to avoid waste and maintain freshness. Next
would be the order arrangement, where in order for the items are being put in the right box
and station, the AI system is aligned together. As orders are being arranged automatically,
workers don’t have to go multiple places, instead the work comes to them. After dozens of
stations, orders be sent to the loading area for a final check and are ready to be delivered
via trucks. Their consistent deliveries make FreshDirect demand a new area of growth.
However, their hub and spoke model remains top-notch in centralizing goods and
transporting them. At the end of the video, FreshDirect explained the overall e-grocer’s share
and compared that between 2019 and 2020, a vast transformation is seen and expected to
grow.

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Insights

Looking FreshDirect as a whole, it is undoubtedly that the company is the most trusted
online grocery store in the United States. Its business model is the same as any online
shopping platform but understanding the true requirement of customers is the key aspect
that makes FreshDirect unique in the marketplace. From the start, a wide range of products
is available on the site or mobile app of FreshDirect, which customers can navigate and
search for products and can add them to their baskets. Customers also can choose either
store them on their wish list or perform a checkout right away. Using the payment gateway,
customers will pay through the app or website. The admin of the platform shall deduct the
commission expenses already agreed upon between the vendor, the local farmers and the
administrator, which is FreshDirect and will forward the balance amount to the farmer’s
account.

Seeing the state of the world during the years 2020 and 2021, the importance of online
grocery shopping cannot be denied. The brick-and-mortar form of grocery shopping requires
individuals to stand in long queues and wait for their turn to get the product delivered. Amidst
these times of COVID-19, it somehow puts the e-grocery demand with tremendous growth
as now it isn’t really practical to go around shopping. Given the situation, getting hold of an
online grocery seller and a contactless delivery service provider is the ideal way to go and
FreshDirect leads its way. However, with FreshDirect’s success, they won’t come this far
and sustain without proper operation management. Based on the video, FreshDirect has
been putting tons of effort into finessing every stage of their operation management to cope
with the demand every day. Their way of executing each process is extremely good for
achieving the desired output: 3 million grocery items to be delivered to homes every week.
One apparent operation management implementation in FreshDirect is their use of
technology resources, whereby the utilization of AI takes place. In laymen’s terms, they used
a system instead of conventional to execute work in every stage.

In operation management, every work can rapidly be gleaned from the technological
advancement and it has a made world of positive differences. These differences are evident
in savings, increased productivity, reduced staffing and the ability to change or alter
production quickly and efficiently. Even by looking at the video, workers weren’t struggling
with the technology used, instead they were making progress and not taking backward
steps. Workers didn’t seem to have a problem with technological advancement because of
the team of experts who had spent a great deal of time taking data from databases and
organizing it into a system. A solid team that handles databases is extremely important,
especially in dealing with tons of workers and processes and catering both at once. The
team that handles it has the skills to use the databases properly and their technological
awareness is good. With a good foundation of extracting data and making a system so
workers can understand what the data is telling them, hence the operation management
won’t experience any hassle as everybody is aware. That is why each stage in the
FreshDirect facility is operated well and co-dependent with other stages coherently without
any misleading information regarding the orders. Because the AI system improves their
communication with other stages and keeps workers engaged systematically. It reduces
stress by allowing other stages to keep with the important order datelines in the system. The
Al system technology has benefited not only the workers but also the farmers because it
increases the reaching capacity in less time. For example, a customer can literally get fresh
fish from the sea within two days with technological advancement.

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Which is why having a system is helpful, as it makes vendors and FreshDirect coordinate
their supply chain management activities. Furthermore, FreshDirect is one of the top players
in online platforms because of its good coordination between suppliers and distributors.
Their inventory management is extremely precise as they coordinate with each other well,
hence they know when to order inventory, how much to order and where to store stock.
Vendors and distributors want a precise inventory perspective to ensure customer’s orders
are fulfilled, improve shipment turnaround times and avoid stockouts and oversells. Hence,
their use of technology in inventory tracking makes it more accurate and reduces material
waste. It can be seen that FreshDirect has been utilizing an automotive supply chain in their
inventory management, where it is easier to source, given the very heavy design elements
that nail down demand to macro levels. The constant and highly detailed communication
between suppliers and distributors means that this is much easier to plan and schedule, but
the execution is key. Having a specific inventory in sequence to match the assembly order is
paramount rather than dealing with issues like stockouts, runs or overstocks.

FreshDirect has a good inventory management system as it uses modules that, in most
cases, are ready to deploy and cover most of the needs to automate and streamline
warehousing operations. FreshDirect only has one massive warehouse facility that copes
tons of modules like inventory listing of every product, the location of the production in the
warehouse, product barcode scanning and label printing, order flow management, a
receiving module that tracks products when they are received, create labels with barcodes
for them and assign them specific locations in the warehouse, a shipping module that keeps
tracks of what gets sold, removes it from the warehouse and updates the inventory, a
financial module that acts as a ledger, connecting different functions of the organization in
different geographical locations and many more. Precise inventory management allows
FreshDirect to cope with 3 million orders every week and deliver on time. With such a huge
number of orders, it is impossible to do it without proper inventory management made by
FreshDirect.

Moreover, FreshDirect’s operation strategy in continuing their business goals in e-commerce

platforms is convincing as they know that online grocery demand will not decrease any soon.
Also, their long-term prediction of the growing demand is precise, where customers love the
comfort of purchasing essential commodities without taking a step. On top of that, because
the demand grows through various locations, FreshDirect’s success and popularity can be
seen. Like when they are dealing with fresh vegetables and groceries, they need to deliver
them in quite a vast area to maintain their reputation. Only then will the customers be
satisfied. Due to their success in delivering stocks to the customers despite their location, it
automatically led to the gain of customer base.

FreshDirect’s business model is completely different from the normal grocery store supply
chain as the normal ones implement a more decentralized model consisting of multiple
warehouses, distribution centres, stores and others. Meanwhile, FreshDirect implements a
centralized model involving only one gigantic warehouse connecting farmers and catering to
customer orders. However, having a decentralized or centralized definitely has its pros and
cons, but FreshDirect’s motive of using centralized has its right purpose. This is because
FreshDirect originated only in the United States, hence having only one warehouse is fair
enough as it is not worldwide. It reduces their operating costs and gives them the advantage
of spending more on innovation and systems. Indirectly, it creates better customer service by
bringing focus from one particular place.

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References

Boyer, K.K. and Hult, G.T.M. (2005), Extending the supply chain: Integrating operations and
marketing in the online grocery industry. Journal of Operations Management, 23: 642-
661. https://doi.org/10.1016/j.jom.2005.01.003

Delasay, M., Jain, A., & Kumar, S. (2022). Impacts of the COVID-19 pandemic on grocery

retail operations: An analytical model. Production and Operations
Management, 1– 19. https://doi.org/10.1111/poms.13717

Chen, Xiang & Wang, Yiru & xu, Ran & Schwartz, Marlene & Ghosh, Debarchana. (2020).
COVID-19 and Retail Grocery Management: Insights from a Broad-based Consumer Survey.
IEEE Engineering Management Review. PP. 10.1109/EMR.2020.3011054

Zuokas, Danas & Gul, Evren & Lim, Alvin. (2022). How did COVID-19 change what people
buy: Evidence from a supermarket chain. Journal of Retailing and Consumer Services.
103010. 10.1016/j.jretconser.2022.103010