To set the stage, the initial implementation and learning from phone/catalogue home-shopping in ASDA is outlined to demonstrate why e-commerce was seen as most economically suitable to conduct a grocery home-shopping business. Then the paper illustrates the development stages and critical aspects of ASDA. com’s Web shop. Particularly, it delineates the operational aspects of B2C e-commerce in the grocery business: fulfillment center and fulfillment process. The case will also describe ASDA’s efforts in overcoming problems with their home-shopping fulfillment model and present important elements of ASDA. om’s virtual store and its operation. The paper concludes with the challenges that ASDA. com has been facing, their current status, and future prospects.
The company’s trading activities involved the operation of food, clothing, home, and leisure superstores throughout Great Britain, mainly targeted at the British working class family. With its superstore format, the company had been very strong in non-food offerings. In January 2004, ASDA had 255 stores and 24 depots around UK with 122,000 employees and was a subsidiary of US-based Wal-Mart Stores Incorporated, the biggest retailer in the world. This paper appears in Idea journal International Journal of Cases in print or electronic forms without written Copyright © 2005, the Group Inc. Copying or distributing on Electronic Commerce edited by Mehdi KhosrowPour. ASDA’s parent, was founded by Sam Walton in Bentonville, Arkansas, United States (US) in 1962.
In the fiscal year ending January 31, 2004, the company was one of the biggest in the world, with a turnover of around $256. 329 billion under the lead of H. Lee Scott, Jr. the president and CEO. In total, Wal-Mart had nearly 5,000 stores and wholesale clubs across 10 countries and more than 1. 3 million employees worldwide (which were referred to as the “associates” in Wal-Mart or “colleagues” in ASDA). The ASDA headquarters were based in Leeds. Leeds is the premier city in Yorkshire, one of the northern counties in the United Kingdom.
The company was founded by a group of Yorkshire farmers in 1965 as Associated Dairies. Its first store opened in the same year, and since then, it has specialized in bulk selling at low prices. ASDA then expanded into the South of England in the 1970s and 1980s. The company was acquired in June 1999 by Wal-Mart Stores Inc. In 2004, ASDA’s management team was led by Tony Denuzio, CEO for ASDA, which reported to John Menzer, president and CEO of Wal-Mart’s international division. ASDA acquired and retained customers by providing a broad assortment of quality merchandise and services at low prices.
Wal-Mart’s “Everyday Low Price” policy (EDLP) had gained ASDA the title of “British best value supermarket” for 7 successive years. In 2004, it offered around 25,000 lines of food and non-food. ASDA, as all other subsidiaries of Wal-Mart Stores Inc. , was ruled by three basic beliefs: respect for individuals, service to customers, and striving for excellence. These rules were established by Sam Walton (1992). Walton also claimed that the success of building the company could be pinned down into 10 rules that were still true for the company in 2004.
These rules were:
- Commit to your business. Believe in it more than anybody else;
- Share your profits with all your associates, and treat them as partners;
- Motivate your partners;
- Communicate everything you possibly can to your partners;
- Appreciate everything your associates do for the business;
- Celebrate your successes;
- Listen to everyone in your company;
- Exceed your customers’ expectations;
- Control your expenses better than your competition;
- Swim upstream. Go the other way.
Really, we got big by replacing inventory with information” (Walton as cited by Wal-mart, 1999, p. 9). IT played a major role in the success of Wal-Mart. It believed that IT was a key facilitator in staying focused on customers: getting customers what they want, at the right place and the right time, and exceeding their expectations. The management of IT in ASDA was housed under the ISD (Information Services Division), led by Andy Haywood, who reported to Linda M. Dillman, Wal-Mart’s CIO (chief information officer). Figure 1 describes ASDA’s ISD strategy.
The Acquisition of ASDA by Wal-Mart
ASDA had access to the world’s best IT infrastructure for a retailer. IT integration between ASDA and Wal-Mart was completed at the end of 2002. In the long term, such integration would enable ASDA to grow without limitations, as was explained by Wal-Mart Europe ISD director in 2003: “…what we have done is to replicate to some extent the infrastructure we have in the rest of Wal-Mart to allow ASDA to expand in any way/shape/form they need to. In more immediate terms, such integration had enabled ASDA to leverage its supreme IT infrastructure to continuously maximize efficiency, lower prices, improve availability, increase the quality of goods provided, as well as widen variety. At the heart of the IT infrastructure, a very powerful tool that allowed such improvement was Retail Link. Since the acquisition was completed in 1999, a lot of effort was put into adopting and developing the system to conform to ASDA’s business practices.
In 2003, Retail Link facilitated the daily trading practices between ASDA and more than 1,000 suppliers. Retail Link was a proprietary Web-based exchange linking Wal-Mart (including ASDA) and their suppliers, or a private e-marketplace (Hoffman, Keedy & Roberts, 2002). In 2004, Retail Link was the biggest commercial data warehouse in the world (with 101 terabytes of capacity), which captured (among others) the point-of-sale figures – by item, by store, by day – enabling company and suppliers to track merchandise, study how the products sold, inventory information, and shipping deals.
The system integrated Wal-Mart’s EDI (Electronic Data Interchange) networks with an extranet used by the trading teams and some 10,000 suppliers. The sophistication of real-time. data gathered from its network then helped the company to develop sophisticated data warehouse tools and computerized data exchanges with suppliers.
The impact of Retail Link on ASDA’s business can be explained as follows: Getting customers what they want: Advanced data-mining for accurate merchandising. The availability of historical data in Retail Link allowed sales from the past 10 years to be combined with variables such as weather, holidays, and school schedules to predict optimal product supply for specific stores under a range of situations. In the price they want (even lower), when they want them: Real-time data for minimized inventory cost.
Availability of real time data related to ASDA’s business enabled the company to implement a just in time supply system, minimizing inventory costs. The level of buffer inventory could be minimized, whilst still ensuring goods were always available when customers want them by automatically alerting vendors whenever supply was needed using point of sales figures from Retail Link. (b) Perpetual inventory and collaborative planning, forecasting, and replenishment (CPFR) for optimized replenishment. Instead of its previous systems of replenishment (store-driven ordering), with Retail Link ASDA imposed “perpetual inventory” using the timely information of sales, inventory, and so forth that were shared between the company and its suppliers. As such, the replenishment of goods could be continuously optimized. Retail Link also enabled ASDA and its suppliers to collaboratively conduct and analyze the planning and forecasting for related products.
As a result, both parties could continuously advance their lanning and forecasting techniques for optimum replenishment, further improve communication, and deepen the supplier-buyer relationship. Global purchasing for improved bargaining power and quality of goods. Retail Link allowed the aggregation of orders from different Wal-Mart divisions around the world into a single request to suppliers all over the world. By acquiring certain products from a single supplier, Wal-Mart was able to improve the quality of its goods as well as supply logistics and retail prices. Improved logistics capability. The timely information enabled by Retail Link allowed the logistics team to efficiently deliver goods from its hub-andspoke systems to stores, to respond timely to customers’ needs. As can be gathered, Retail Link was an important source of ASDA’s competitive advantage: low-cost leadership. This discussion is aimed to provide an understanding of the company’s capability in continuously lowering prices, getting customers what they want when they want it, and exceeding their expectations.
However, while it serves as an excellent background to the case, Retail Link is not the main focus of this case study. This paper focuses on ASDA @t Home, the B2C e-commerce side of ASDA.
Among the Big Four, ASDA, Morrisons, and Tesco had been positioned as lowcost or value providers, with ASDA targeting a slightly lower level market than Tesco, while Morrisons was more or less similar to ASDA. J. Sainsbury’s, on the other hand, had been trying to reach a slightly higher end of the market, yet was “caught in the middle” when competing with the likes of Marks & Spencer or Waitrose. Its loss of market share against ASDA illustrates that price was still a key factor for customers (Michaels, 2004). The distribution of power between supplier-retailer-consumer in the grocery industry had evolved in the last few decades. While in 1970s most power was held by producers that supplied grocery retailers, between the 1980s to mid-1990s, the power had shifted to the retailers.
Nonetheless, since the late 1990s, consumers were claimed to possess the most power (as revealed by ASDA’s head of ISD infrastructure during an interview) along with their changing lifestyles and demographics. As such, there had been a transformation in the UK supermarket industry marked by intense competition and tighter profit margin to players. This development had then forced retailers to pursue better partnerships with their suppliers (Zairi, 1998). At the same time, physical expansion got harder along with increased population and market saturation. Such a situation had made customer acquisition and retention difficult. More than ever, retailers were forced to experiment with creative innovations (e. g. product, store format, service) and adoption of advanced new technology to achieve the optimal rate of operational efficiency as well as customers’ shopping experience. In the face of difficulties in the grocery market since late 1990s, as outlined above, home-shopping was seen as an attractive option for supermarket players. The UK grocery market was oligopolistic with high utilization of average store space.
Therefore, it was arguably very suitable for the grocery home-shopping business (Boyer & Frohlich, 2002). In fact, the need for a grocery home-shopping service had been identified for decades. Nevertheless, in the UK there had not been a mechanism of rolling it out profitably. This was due to the efficiency of the self-service model in grocery retailing, coupled with a tiny profit margin related to the business. The economical offering of homeshopping services was not possible without charging customers excessively due to the expensive labor and logistics costs. The year of 1990 marked the beginning of the UK grocery home-shopping era with the launch of The Food Ferry, the world’s oldest operating grocery home-shopping company. This company used a catalogue home-shopping model and outsourced its goods to local suppliers targeting a small area of customer households around central London. Later on in the mid-1990s, some of ASDA’s strong competitors, Tesco and J. Sainsbury, had entered the online shopping market (1995 for Tesco and 1996 for J. Sainsbury). Inspired by the development of online grocery supermarket in the US as well as the aspiration to capture competitors’ market shares, both players started investing in building the online grocery market. They were also followed by several other supermarket players. During this time, both Tesco and J.
Sainsbury had been fulfilling customers’ orders from their stores. (In 1999, J. Sainsbury started investing in a warehouse for home-shopping purposes. ) ASDA took a “wait and see” stance for their e-commerce launch and opted for a phone/fax catalogue-based shopping to start with (Faragher, 2002). In order to bring ASDA’s offering to a whole new audience, ASDA’s first ever home-shopping initiative was piloted in December 1998. The business, called “ASDA @t Home,” initially sold groceries. After a two-month pilot, ASDA @t Home went live in the form of catalogue home-shopping, adding paper-based catalogues to the existing online catalogue, offering next day delivery.
Traditionally, the company had a stronger presence in the northern part of England and focused on middle to lower economic classes. At the end of its 2-month pilot, the service was extended to reach as many as 450,000 upmarket households within the radius of 15 miles from its first home-shopping warehouse in Croydon, South London. After less than a year of running the business, supporting existing home-shopping systems with a third-party call center had proved very expensive for ASDA.
Furthermore, low profit margins of the grocery business would have to cover fix and variable costs inherent in the home-shopping service (such as driver costs, petrol, depreciation costs for vans, warehouse operation costs, labor costs for picking and packing customer orders, and others). Figure 2. Phone-based catalogue shopping ordering process for ASDA @t Home Start Ordering Process Customer register details on the phone Phone Operator take details and ask customer to read 6 digit codes next to catalogue Customer read 6 digit codes Phone Operator read out product Product Correct? Yes Any special instruction? Yes Special instruction recorded by operator No No Is there any other orders? No Customer pay with credit/debit card on the phone Yes Operator key in order to PC system, automatically downloaded to Home shopping server Finish Ordering Process Copyright © 2005, Idea Group Inc.
Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited. marked the gradual changeover from phone/fax to include PC-based home-shopping. It was Octavia Morley, ASDA’s director of home and online home shopping who was directly responsible for the venture. Trials of PC-based shopping were conducted in August that year. Customers used a CD-Rom, which allowed them to order the whole range of products available from the catalogue. PC-based orders would be created off-line, and then customers would connect to the home-shopping servers using the Internet to transfer their orders.
At about the same time, the company started its second warehouse in Watford, expanding their reach to another 250,000 households; they also had planned another 13 to 15 depots nationwide in 2003. The trial was successful; Morley reported that it was a significantly cheaper channel to conduct a home-shopping business (compared to phone/fax) (Mugan, 1999). PC-based home shopping acted as a trial for a seamless multi-channel homeshopping offering that was seen as the preferred choice by ASDA’s management since the year of 2000. s.
During this time, the company had learned from its competitors’ mistakes and perfected its warehouse operation. After it was launched in November 2000, the company started expanding its services until yet another major changeover in 2001 for ASDA @t Home’s operation. This fact showed how complicated the implementation of an e-commerce application was, even for a company with such vast resources. The next section provides a discussion on the development of ASDA @t Home online, the problems it faced, how it overcame them, and its vision forward.
This was the starting point of ASDA @t Home’s migration to a higher level of home-shopping operation. For over 6 months, the team conducted the design, coding, testing, and deployment of the ASDA. com Web site. They identified several critical aspects for the Web site, among all: techniques for finding products, checkout mechanism, shopping basket facility, delivery booking, security, customer help/guidance, account information, and registration. In November 2000, ASDA @t Home launched their Web site for a closed community. For this, a team of developers was put together to support the launch of the Web site in Bentonville (Wal-Mart’s head office).
The project team rapidly ironed out initial glitches using feedback from the initial users of the site, ready for the full launch in December 2000. When the Web site was finally launched, ASDA @t Home allowed customers to be able to hop between the Web and telephone, at the time offering 6,000 lines of products. Customers could even “mix and match” between different ways of accessing ASDA @t Home to place an order. The business had also launched its Interactive Digital TV shopping in 2002. This, however, was closed down after approximately a year in operation. Customers’ Orders Fulfillment A key element of online grocery was how fulfillment was handled (Boyer, Hult, Splinder & Santoni, 2003; Ellis, 2003). There were two basic models available (Tanskanen, Yrjola & Holmstrom, 2002). The first was to piggy-back on an existing supermarket or cash and carry (this will be referred to as in-store picking). Online grocer could either pick goods from its existing supermarkets/cash and carries or, in the case of pure plays, from others’ stores. The second alternative was to serve the online grocery customers by building a dedicated picking center, either automated or not.
In comparing both models, according to Delaney-Klinger, Boyer, and Frohlich (2003), the in-store picking model would minimize cost when sales were limited by sacrificing some degree of picking efficiencies. Furthermore, this model would enhance existing customers’ shopping experience as goods were delivered from their local stores (Seybold, 2001). Nonetheless, in-store fulfillment bore the risk of cannibalization to the existing stores, as shoppers needed to compete with in-store pickers; it would also be inefficient for huge volumes (Boyer & Frohlich, 2002). With a dedicated fulfillment model, a company could serve much more orders than with an in-store model. The order fulfillment process could be optimized, and the cost of picking could be minimized with this model.
Furthermore, food quality as well as availability could be ensured by having a dedicated center (Roberts, Xu & Mettos, 2003). Customers could benefit from almost real-time visibility to the availability of goods when ordering from companies using this model (Yousept & Li, 2004). Nevertheless, this model required a significant upfront investment; Webvan, for example, spent $25 million (? 13. 8 million) for each of its automated warehouses. Furthermore, it also entailed more logistics cost compared to the in-store picking model, as warehouses were usually built relatively far from customer residence (Roberts et al. , 2003). Table 2 compares the limitations and benefits of both approaches.
Rather than implementing any of the fulfillment models in their purest form, companies could also implement a hybrid model, an operational option between in-store picking and a dedicated fulfillment center (Yrjola, 2001). This way, players were trying to combine the benefits of both worlds. In practice, there was no best way of implementing a hybrid model. In the UK, due to the emerging development of the online grocery business, in 2004, a lot of experiments were still conducted to find the best way for each player to optimize fulfillment. For example, Tesco in the UK had different combinations of its online shopping fulfillment model: 1. 2. In-store picking for grocery goods.
Combination of dedicated/in-store for wines: Cases of goods were picked in a central depot, they were then sent through to stores. In the designated store, wines were then being cross-stocked (i. e. , they did not go the store’s stock). Finally, they were shipped to customers. Outsourcing for items, such as CDs, DVDs, white goods, and general merchandise, to a third party (where the company used the supplier’s warehouse).
In-store Picking Benefits Negligible start-up cost Instant coverage of service to wide audience using supermarkets network nationwide Dedicated Picking Centre Limitations Significant start-up cost Only covering areas surrounding the warehouse (even though each warehouse can cover a much wider area than a store), therefore slow coverage to wider audience Significant additional operational cost, wastage, overhead and other cost related to running a warehouse Smaller range of products offered Little extra to current operational cost Wide range of products offered (following the store’s range) Limitations Limited home-shopping fulfilment capacity Inefficient picking process – high cost No visibility of goods availability Risk of error in goods replacement Big risk of product error in general Disturbance to offline customers Lower assurance over food quality in online order fulfilment
Benefits High home-shopping fulfilment capacity Optimised picking process – low cost Near real-time visibility of goods availability Limited chance of the need to replace goods Less risk of product error in general No disturbance to offline customers Better assurance of food quality in online order fulfilment Nevertheless, embracing hybrid models usually involved different customer ordering systems, back-end systems as well as fulfillment processes. In some instances, players might decide to adopt hybrid methods for different geographical areas with varying levels of demand and population density. This might sometimes result in twice the effort of designing work practices and investment in different systems. The problem of home delivery service also represented a big challenge in online grocery shopping (Punakivi, Yrjola, & Holmstrom, 2001).
One of the most important factors that affects the cost for home delivery was sales per area (sales per mile2 or km2) (Yrjola, 2001). The more sales there were until a certain point, the lower the cost of home delivery. This represented a challenge for a dedicated fulfillment center. Other important aspects were related to the delivery time window offered to customer as well as when the delivery was in comparison to the order. Different combinations included one-hour delivery window, two-hour delivery window, either next delivery or longer (Punakivi & Saranen, 2001; Punakivi, Yrjola & Holmstrom, 2001). ASDA @t Home fulfilled its customers’ home-shopping orders using a dedicated warehouse.
This model was chosen for ASDA @t Home’s operation instead of the instore picking model to avoid the cannibalization of their existing stores. It was believed. That a bespoke dedicated fulfillment model would be more efficient than an equivalent store operation, which was designed to ensure maximum shopping enjoyment, impulse buying, and ease of finding based on consumption habits. Arguably, the traditional supermarket store design could not produce the optimal process to fulfill customers’ homeshopping orders.
The dedicated warehouse model would also be able to handle a greater volume of orders (Spence, 2002a) and enabled ASDA @t Home to reach areas where it did not have a strong presence at the time. The Changeover ASDA @t Home had been operating for 18 months when it became apparent that the dedicated fulfillment center was not suitable to support the growth of the business. Round about the time of introduction to a new multi-channel platform, Iain Spence was conducting a feasibility analysis to compare in-store fulfillment and ASDA’s warehouse model; he concluded that in-store picking was more commercially viable. This was confirmed by ASDA’s general manager for e-commerce in 2003. There were several reasons why a dedicated fulfillment center would not be suitable for ASDA @t Home: 1.
Low customer uptake for online grocery home-shopping while it was very expensive to run the warehouse. ASDA @t Home was experiencing problems in achieving breakeven on the warehouse operations costs on a daily basis. Both existing warehouses had problems reaching the breakeven point of 500 orders a day. The short shelf life of much food led to a massive amount of wastage, while no steady income was definite. In addition to wastage, other aspects (e. g. , rent, depreciation, labor) also added to the expensive cost of warehouse operation.
