Gateway Grocery Case

Executive Summary

Dominique Van Voorhis, the vice-president of industrial engineering and operations systems for Grocery Gateway has been asked to make recommendations aimed at improving delivery operations at the weekly management meeting in seven days. There she will need to present her plans to the CEO and COO of Grocery Gateway that will help the organization realize its profit objectives.

To optimize delivery operations, two solutions are recommended. First, an upgrade to the route optimization software should be purchased to provide a more effective analysis of route profitably and determine appropriate delivery times. Second, a change in the cash collection from point of delivery to point of purchase will further increase operation efficiencies. These changes to operations are expected to increase the number deliveries per hour to help meet the organization’s objective to become cash flow positive in 2001 on a variable costs basis.

Problem Statement

Dominique needs to determine how to increase sales in order for Grocery Gateway (GG) to move into a positive cash flows position for variable costs. Although drivers are budgeted for 4 stops per hour on area (SPHOA), current trends are 2.7 stops. Dominique needs to present an economical and feasible way to do this, while maintaining good customer service, in a report to the management group in one week.

Company Background & Forecast

Grocery Gateway, an on-line retailer, was established in 1997 and by 2001 had 125,000 registered customers. The company offers approximately 6,500 items including dry goods, health and beauty products, alcoholic beverages, fresh produce and frozen foods on their website, www.grocerygateway.com, at competitive prices that are delivered directly to the customer’s home.

In May 2001, the company moved from a 6,225 square meter facility to a 26,000 square meter facility at a cost of $15 million. Approximately 275 employees worked in the distribution centre. GG had 100 drivers and 55 trucks equipped to handle a total of 125 totes filled with dry goods, cold produce and frozen items.

Customer orders needed to be a minimum of $60 required an $8 delivery fee and orders could be altered up to 14 hours before delivery. Grocery Gateway service area was about 3,200 square kilometres, incorporating roughly 7 million people. In November 2001, it became one of the largest direct online grocery retailers in Canada.

The company’s target was to achieve 4 stops per hour for delivery drivers; however, recent management reports have shown only 2.7 stops per hour for October 2001. If no additional deliveries can be made, the delivery system will move on to the next delivery window. The lacks of synchronization between systems indicate a sign of systems failure.

Currently, in 2001