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Online grocer FreshDirect churns out 7,000 orders per day to a market populated by demanding foodies. The retailer, whose largest delivery area is New York City, is working to further streamline and “green” its already enviable operating model.
After slashing the number of boxes it uses by more than 20 percent in 2009, FreshDirect is shifting to paper bags and reusable plastic boxes to both ratchet up efficiency and protect the planet.
These changes reflect tweaks to the company’s signature, vertically integrated operating structure. FreshDirect controls all aspects of its supply chain – a key ingredient to its success. “The vertically integrated manufacturing of products radically changes the cost structure,” says Jason Ackerman, the company’s founder, vice chairman and CFO.
Still, there’s always room for improvement. FreshDirect, which aims to offer the highest-quality fresh food at 20 percent below supermarket prices, saw an opportunity to reduce the number of boxes it used per order. The move was in response to customer complaints about too many boxes and too few items in each box.
FreshDirect operated three packing areas at its Long Island City headquarters – two refrigerated areas for items like produce and meat, and one for non-perishables – and the way it boxed goods mirrored that system. If a shopper ordered a variety of groceries but only one refrigerated item (like a piece of fish), that refrigerated item would come in a separate box. This resulted in excessive boxes upon delivery to the customer, more boxes for drivers to unload, higher paper costs – and increased waste.
FreshDirect added new conveyor belts to its assembly line that more efficiently collate and pack orders, and significantly reduced the number of boxes with three items or less. It also revamped its SAP solution portfolio by rewriting code to reflect the volume of boxes and the size of products.
As a result, orders now average 2.6 boxes, down 26 percent from the previous average of 3.5 boxes, and the grocer is reaping other tangible benefits from the shift: Fewer trucks are needed to deliver orders, and fewer orders require hand trucks – which enables drivers to deliver through lobbies (rather than service entrances) in some cases, speeding up delivery time. Cardboard costs have been reduced, as have the number of damaged products.
Overall, “we eliminated about 1.5 million boxes annually,” Ackerman says. But FreshDirect is not stopping there; the next step is doing away with cardboard boxes altogether. By year’s end, the goal is to transition to a system in which orders are packed in paper bags, which will then be delivered using reusable plastic boxes.
The change will “cut down on the amount of paper we use as a company, and reduce the amount of paper we need to run the business, which is good for the environment,” he says. It’s also expected to save the grocer around $500,000 annually.
Additional operational revamps FreshDirect has rolled out over the last few years include trucks that have been outfitted with new temperature, engine and location monitoring technology to help track vehicle and driver performance. The technology identifies delivery mistakes and glitches – be it an item missing from an order, or a truck that’s running late – and alerts headquarters so that corrections can be made.
The company also installed automatic idle kill devices in its vehicles to ensure 100 percent compliance with city and state idling regulations. These devices take the engine cut-off decision away from the driver by turning the engine off after one minute in park – forcing the driver to turn the key off, then on, to regain operation of the vehicle.
