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Archive for the ‘Focus’ Category

Last week I posted on the challenges Starbucks was having with an increasing number of mobile orders. Now, it seems that the company is going to test a different approach: A location that only takes mobile orders (Starbucks to test mobile order and pay-only store at headquarters, Mar 30, Reuters).

Starbucks’ headquarters has two cafes that serve the more than 5,000 company employees who work there. One of those cafes, which is available only to company employees, is among its top three stores in the United States for mobile ordering.

Mobile orders from the building will be routed to the new store, which will have a large window where customers can pick up drinks and see them being made.

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Most of us think of IKEA as “just some oak and some pine and a handful of Norsemen selling furniture for college kids and divorced men” but they also move a boat load of food. The Wall Street Journal reports that with food sales of around $2 billion per year, they are around the same size as Panera and Arby’s (IKEA’s Path to Selling 150 Million Meatballs, Oct 17). Just why and how did IKEA get into the meatball business? Check it out.

And here’s the reporter with a little more information explaining how IKEA has grown its food business.

[audio http://podcast.mktw.net/wsj/audio/20131017/pod-wsjwnhansegardikea/pod-wsjwnhansegardikea.mp3]

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“We live in a world of speed and cheapness,” says Roger W. Smith, who makes every component of a watch from scratch and by his own hand.  It is the ultimate opposite of that other Smith (Adam)’s division and specialization of labor.  I believe there is room for both in our world.  It takes one watchmaker about 6 months to produce one watch.  The result is a masterpiece…

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A Slate article asks a very simple question: “Ikea is so good at so many things. Why is it so bad at delivery?”

The author tells the story of an item that was purchased from Ikea and was supposed to be delivered by a third party. While Ikea claimed to ship the item, the third party claimed to never receive it. Since Ikea claimed the item was shipped, the order could not be cancelled without incurring a hefty cost. Apparently, this is not a unique experience:

The nightmare of Ikea delivery is a truth so universally acknowledged that even the company cops to it. Chief marketing officer Leontyne Green talked about her own “very frustrating” Ikea delivery experience in a December 2011 Ad Age profile, which stressed the firm’s ongoing efforts to improve delivery and overall customer service.

In trying to explain the above conundrum, the author recruits several of our colleagues from Dartmouth and Harvard:

“With sporadic orders over a wide geographic area, Ikea would need a fleet of trucks that might be idle one day and not able to handle the load the next,” says Robert Shumsky, a professor of operations management at the Tuck School of Business at Dartmouth.

We have discussed several times, albeit in the context of grocery delivery, the fact that one of the main cost drivers of delivery services is density. Since Ikea tends to be quite far from urban and dense areas, it is usually difficult to build density and thus difficult to offer a cost efficient services.  One may charge a high price for such a service, but given their target market, this may not be ideal. (more…)

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How should Wal-Mart fill web orders? That seems like a straightforward question. And, given that Wal-Mart sold over $7 billion of stuff on the web last year, you would think they would have figured that out by now. Still as the Wall Street Journal tells it, the retail giant is still working through how best to fill orders (Wal-Mart’s E-Stumble With Amazon, Jun 19).

E-commerce at Wal-Mart is run as a distinct business, with its own headquarters, CEO and merchants who buy items specifically for the website. Every year, executives would start a “five-year planning exercise, but the plans were never executed and management would say the sales weren’t there to justify the investment capital,” says a former online-division executive. “Even now e-commerce is a rounding error in the U.S. market.” Wal-Mart said it expects $10 billion in online sales this year, which would amount to about 2% of its $469 billion in annual revenue.

As Wal-Mart’s online orders grew, it turned to makeshift spaces carved out of store-serving distribution centers and third-party warehouse operators to help handle the load. The extra layer added to its costs. Wal-Mart’s online shipping can cost $5 to $7 per parcel, while Amazon averages $3 to $4 per parcel, analysts say—a big difference considering some of Wal-Mart’s popular purchases are low-cost items like $10 packs of underwear.

As the quotes make clear, this is all about how to match Amazon  so Wal-Mart remains relevant as more transactions move on-line. To put the challenge in perspective, check out this graphic of Amazon’s distribution network.

MK-CE100_WALFLU_G_20130618173906

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In our Operations Strategy MBA class, Gad and I teach and discuss the operations and economics of Internet grocer pioneer Peapod.  Two interesting e-grocer articles appeared this week:

The first, written in Forbes by Tom Ryan, is about AmazonFresh, the grocery overnight delivery service founded by Amazon in 2007, but still only serving the greater Seattle area.  Why?  In class we show the difficulty of this business and I praise the operational focus of Amazon.  If Amazon is using this as a testbed for future expansion, it confirms our findings that this is a slow business where one must build density household by household.  It simply takes a long time to arrive at profitable density: even for Amazon, it’s taking more than 6 years.

In his article, Tom proposes a second raison d’etre of AmazonFresh:

AmazonFresh isn’t about “competing with a small market with razor-thin margins and a checkered history.” It’s all about helping Amazon.com attain the scale to support its ambition to build a national same-day delivery shipping model.

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A great article titled “The Ghosts of Sony” and authored by Jake Adelstein and Nathalie-Kyoko Stucky, came to me via a tweet by my good colleague Robert Swinney.  (That’s one of the reasons I love Twitter!) It surely is worth a read as it prodded a few thoughts:

  • History repeats itself: In our Operations Strategy class, we teach two cases that prominently feature Japanese companies both in the same scenario: they attack the incumbent (a Swiss and an American company, respectively) “from below” and gradually move up the food chain.  This follows the typical innovation dynamics that Clay Christensen has promulgated.  After Sony did the same, it became the incumbent and is now under attack by South Korean Samsung Electronic Co.
  • Are management professionals good CEOs of tech companies?  We need to see more than a few data-points but Sculley didn’t perform well at Apple either, nor did this work at Sony:

Former Sony executives and current employees blame the fall of the firm on the loss of brainpower and good employees during the reign of Nobuyuki Idei, from 1999 to 2005. Idei was the first Sony CEO to rise up entirely from a management background and in the “Who-killed Sony?” genre of books and articles; he is regularly the prime suspect. (more…)

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