Local Food Online Grocer Relay Foods is Expanding

Online retail is exploding with Amazon leading the charge in the long tail, items consumers buy irregularly.  Online shopping and delivery of fast movers like groceries, however, is available to few areas in the US: FreshDirect in NYC and Peapod in Chicago and some east coast cities are the big exception.

An Operations Audit gives the explanation: the costs of covering the last mile are strongly influenced by delivery density which makes large sprawl areas prohibitively costly to serve (as dotcom busts like Webvan quickly learned).   In our operations strategy class, we study Peapod by linking its financial performance to its operational structure and execution.  Such analysis highlights the importance of operational metrics such as stops per hour and pick&pack per hour and revenue metrics such as basket size ($ per order).  Students always suggest to replace the expensive delivery process by a pick-up model.  For companies with a large investment in delivery assets and processes such as FreshDirect and Peapod, however, embracing pickup (which Peapod is experimenting with) then necessitates a hybrid model.  In contrast, pure-play pick-up models such as the French ChronoDrive never invested in delivery assets.

This brings us to Relay Foods which seems to differentiate itself on 3 dimensions:

1. Emphasize local suppliers, and hence satisfy the “local food movement”.
2. Local supply allows daily deliveries which minimizes inventory risk.
3. Focus on pickup approach. (They also offer home delivery at a premium of $10/order.)

Relay foods is based in Charlottesville, Virginia, and also serves Richmond.  It can show nice growth trajectories (see video below) in those two markets and earlier this month announced it raised $1.2 million to expand in to the greater Washington, Baltimore, and Philadelphia areas.

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A sustainability index for apparel

What makes for sustainable clothes? That is the focus of a Wall Street Journal article on an index developed by an industry coalition that aims to rank apparel based on a variety of factors (Which Outfit Is Greenest? A New Rating Tool, Jul 25).

The Higg Index (its name doesn’t refer to anyone but was chosen to clear copyright protections in 100-plus countries) looks at the entire life of a product from raw material to disposal. Brands can get points for asking consumers to wash items in cold, rather than hot, water, as Levi’s does, or for using recycled components like Nike’s polyester, made from used water bottles.

The graphic below shows how different fabrics stack up.

The index will initially be available to just industry insiders but the goal is to eventually have clothes in stores with tags that let consumers see the impact of their clothes.

Even in its early form, the Higg index is impacting how firms design and make clothes.

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Thin water bottles

So a week after I poo-pooed Slate’s series of operations articles, they published a good one (Why Are Poland Spring Bottles So Crinkly?, Jun 19). The article makes the point that there is often alignment in operations between efficiency and being environmentally conscious. That is, a change that aims first and foremost to save money may also, for example, reduce the firm’s carbon footprint.

Consider Nestlé Waters North America, the company behind water brands like Poland Spring, Arrowhead, and Deer Park. It manufactures all its own bottles—an astonishing 20 billion each year. Starting about seven years ago, the company began to examine its processes. It discovered 1) that it could use far less material in manufacturing its bottles, and 2) that those bottles represented 55 percent of the company’s carbon footprint. “When you make improvements,” says CEO Kim Jeffery, “you tackle the items with the most impact first. The bottle was the logical place to go.” …

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Sustainability and vertical integration

Here’s an interesting story at the intersection of supply chain strategy and sustainability. The LA Times reports that Taylor Guitars has bought an ebony mill in Cameroon (Taylor Guitars buys ebony mill, pitches sustainable wood, Jun 7).

For Taylor Guitars, which has used ebony from Cameroon for many years, the chance to ensure a steady supply of legal ebony was too good to pass up, Taylor said in an interview.

The company teamed late last year with Madrid firm Madinter Trade, which sells tone woods for musical instruments, to buy the Crelicam mill outside of Yaounde, the capital of Cameroon. The purchase wasn’t officially announced until late last month.

Taylor said it’s been a difficult process bringing the mill’s wood sourcing and operations up to what he and his partners consider acceptable. The mill’s subcontractors, for example, typically cut down 10 trees to find one with all black wood, Taylor said. He agreed to boost their pay to get them to deliver that ebony that had been considered undesirable.

There are some interesting motives behind this move. 

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Executive Operations Experience: From Strategy to Execution

For once we are not reporting on external content but on our own: I am excited to announce a totally new approach to executive learning and education on operations. Co-author and co-blogger Gad Allon and I have been working with our friends at McKinsey & Company to design the Executive Operations Experience: From Strategy to Execution.

A new collaboration between the Kellogg School of Management and McKinsey & Company.

Operations executives who are eager to stay current, hone their skills and broaden their networks, take note! In an exciting cooperative venture,  the Kellogg School of Management at Northwestern University in Illinois, USA, and McKinsey & Company will be offering a first-of-its-kind, experiential learning program starting in the fall of this year. Four, three-day sessions taking place at McKinsey’s model factories throughout Europe will provide a curriculum that covers all operational functions, jointly taught by both academics and consultants. Learn if the program might be right for you here.

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On the ethics of fast fashion

Last week, I wrote about wedding gowns. Now it’s time to think of the other end of the fashion price spectrum: fast fashion. The Observer had an interesting piece on Swedish fast fashion retailer H&M and what they report in their annual sustainability report (Is H&M the new home of ethical fashion?, Apr 7). The report is notable because the Swedes have apparently set the goal for themselves of being “the ethical solution, the retailer that can make ethics and fast fashion synonymous.”  So how is that going?

“I don’t think guarantee is the right word,” says Helena Helmersson, head of sustainability, brightly. “A lot of people ask for guarantees: ‘Can you guarantee labour conditions? Can you guarantee zero chemicals?’ Of course we cannot when we’re such a huge company operating in very challenging conditions. What I can say is that we do the very best we can with a lot of resources and a clear direction of what we’re supposed to do. We’re working really hard.”

I believe her. Thursday’s report will show some impressive sustainable figures: for example nearly 2.5 million pairs of shoes were made last year using lower-impact water-based solvents; all building contractors have signed a code of conduct to ensure “good” working conditions; recycled polyester equivalent to 9.2 million plastic bottles has been used, and H&M uses more organic cotton in production than any other group. This year I am told, 7.6% of its cotton was organic (an industry insider estimates H&M’s overall cotton use to be around 200,000 tonnes a year). By 2020 100% will be sustainably sourced cotton. …

Does Helmersson still wake up worried they’ll be the subject of a sweated labour expose? “Yes, I worry about that sometimes. I lived in Dhaka for two years. You see how things happen down the chain in a country like Bangladesh. Remember that H&M does not own any factories itself. We are to some extent dependent on the suppliers — it is impossible to be in full control.”

And therein lies the rub. While H&M talks about responsibility, in the supply chain where retailers devolve power to factories it can be easy to distance yourself. Helmersson says H&M has invested in 100 people in CSR, 75 of whom are auditors (assessing social and now some environmental conditions in factories) and produced a series of groundbreaking short films, including one on fire safety that it claims more than 400,000 garment workers have seen.

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Light bulb economics

How much does it cost to change a light bulb? More than you may have guessed if you think of retailers with large parking lots or hotels with high lobby ceilings. In fact, for these firms the cost of changing light bulbs can be so high that it actually changes the calculation on whether it is worth adopting new types of technologies. As the Wall Street Journal reports (The Math Changes on Bulbs, Nov 30), many firms such as Wal-Mart and Caesars Entertainment are switching to LED bulbs not so much because they use less energy but because they last so long.

Here the reporter explains the reasoning:

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Ikea as supply-chain innovators

Now you may think of Ikea as just some oak and some pine and a handful of Norsemen selling furniture for college kids and divorced men, but Businessweek reports that they are also logistics innovators (Ikea’s Challenge to the Wooden Shipping Pallet, Nov 23). Specifically, they are looking to replace wood pallets with cardboard ones.

Ikea, which uses 10 million pallets to ship goods from suppliers to its 287 stores in 26 countries, will ditch wood worldwide by January, cutting transport costs by 10 percent. The new corrugated cardboard design can support loads of 750 kilograms (1,650 pounds), the same as timber, Skjelmose says. At two inches high, the paper pallets are one-third the height of wooden ones, and they’re 90 percent lighter, at 5.5 pounds. The svelte profile means Ikea can cram more goods into each shipment. The pallets, assembled onsite by most of Ikea’s 1,200 global suppliers, will be used only once before being recycled.

To make obvious joke, the article is silent on whether assembling the pallets requires an allen wrench or wooden pegs.

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Factory of the Future: VW’s innovative “Transparent Factory” in Dresden, Germany

I love to see how things are made and VW makes that especially joyful in their novel “transparent factory.” This is a completely new approach to factory design and architecture with several noteworthy innovations that make this a perfect fit-in for a center location in beautiful downtown Dresden:

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Sustainability index hiccups

Some time ago we posted on Wal-Mart’s attempt to lead the creation of a sustainability index. The idea was to provide consumers with clear guidance on the impact of what they bought. Instead of wondering why one product cost a buck more than a different brand, they would have some information on why. Along the way, it was hoped that such transparency would lead to greater competition between firms to drive costs out of the system in a responsible fashion. So how’s that all going? According to Fortune, not so well (The trouble with green product ratings, Jul 13), forcing Wal-Mart to back off some of its initial goals.

There are several dimension to the challenges Wal-Mart has encountered. For one, not everyone has gotten on board. Wal-Mart had hoped to create a standard for the retail industry but other big retailers such as Target have not signed up. Also, the article suggests that some big brands while going along with Wal-Mart to some extent are not overly thrilled. Further, there have been some administrative headaches like finding program directors. However, the biggest problem appears to be just the daunting nature of the task.

The trouble with any consumer scoring systems is that ultimately consumption is about trade-offs. All products — no matter how “green” — impact the planet in some way. The best a consumer index can do is suggest that one product in some particular way might have less of an impact on the planet than another. To achieve this, mountains of data have to be gathered about the impact of thousands of products across every stage of their life cycle, from raw materials and manufacturing to final disposal, while including social factors like workplace conditions. How much waste was generated by the factory in rural China that made that zipper? How much phosphate was used to make this laundry detergent? Were the chips in that Blu-ray disc player manufactured in an energy-efficient way?

It gets even more complicated once such data are obtained: How should various forms of sustainability be ranked? Is soil erosion less important than carbon emissions? Gary Hirshberg, founder and CEO of Stonyfield Farm, now a subsidiary of the food giant Dannon, has been trying to measure the impact of his own organic yogurt products since the early ’90s. “I’m not saying it’s impossible,” he argues, “but it’s very difficult to do in a credible way.” …

It’s enough to make you wonder whether creating a sustainability index is even worth the Herculean effort. Hirshberg thinks not. A company, for example, might earn high marks for using recyclable packaging, but Hirshberg found that Stonyfield reduced its carbon footprint more by switching to yogurt cups that aren’t recycled. It turns out that cups made from plants and then thrown into landfills generate far fewer greenhouse gas emissions than recycled plastic containers. Similarly, a yogurt company might score high for using organically fed dairy cows, but Hirshberg found that a significant source of his company’s methane emissions — a potent greenhouse gas — is cow burps, of all things. (Stonyfield is in the process of reducing those emissions by tinkering with the feed.)

“In the end we realized that to get a real score is a very costly, complex process that’s probably not worth it,” Hirshberg says. Instead he founded a nonprofit, Climate Counts, that does not rate individual products but scores the world’s largest companies on their commitment to fighting global warming and the transparency of their sustainability efforts.

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