FreshDirect: Ready To Deliver - ' Keeping On Track ' (
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Keeping On Track
One micromanagement moment: A 40-ish man wearing a
white coat and hairnet walks by Wayne Roopnarine, vice president
of operations, with an eggplant and stops for a brief chat.
"See these?" the man says, pointing to a trio of spots on the
eggplant.
"Interesting degradation. Don't forget the photo shoot,"
says Roopnarine.
"We experiment with produce in different temperatures
and humidity levels and take photos for our records," explains
Roopnarine. "Tomatoes have to be warm. Finding the right
temperature for bananas is our biggest challenge. We want a
vibrant color when they go on the truck."
If FreshDirect can take what it learns about temperatures,
humidity and other factors and embed that in mathematical
rules, then its information systems could improve bottomline
results for the company. Toward that end, Fedele recently
hired Dean Furbush as chief operating officer, and Myles
Trachtenberg as chief technology officer, to give the company
number-crunching power. Trachtenberg's predecessor, Robert
Slater, left for personal reasons. Furbush was executive vice
president for transaction services of the Nasdaq Stock Exchange.
Trachtenberg was chief information officer at Prudential
Healthcare and a technology executive at Chase
Manhattan, now J.P. Morgan Chase.
In order to boost the size of each order and drive FreshDirect
into profitability, Furbush and Trachtenberg intend to
mimic Dell, Amazon.com and FedEx Corp. in their ability not
just to cut out middlemen, but to listen closely to what customers
want.
The company did not quite break even on its $90 million
in sales for the year ended Sept. 30. But its average order size
did reach $97, up from $79 at the time of its launch a year earlier.
The company is adding wine and other pricey goods to
help boost the typical order past $100.
But it can also reach profitability by cutting costs. Fresh-
Direct's systems will be tweaked to help it identify the cost of
each step of fulfilling its 3,500 daily orders, from initial preparation
to shrink wrapping to packing to shipping. FreshDirect
will analyze, for example, the positions of workers throughout
the warehouse and calculate the most efficient place for each
one along its conveyor belt.
Currently, hunches and gut instincts rule. At 6 a.m., the
company's vice president of operations, chief operating officer
and chief technology officer often roam the plant floor, watching
how workers prepare orders. Then, they watch as orders move through the plant, reaching a crescendo at 4 p.m., the last moment that FreshDirect can afford to get crates into a truck
for delivery and still reach customers coming home from work.
The executives monitor "choke points" that slow down
work, such as the speed of conveyor belts. One morning in
November, for instance, one belt was moving meat too quickly
for packers to keep up. The fix was to slow down the belt for
more consistent flow. That fix, however, took days of observation.
The change could not be tested until the following
Wednesday, the one day each week new logistical procedures
are tried out. That can mean a week of savings lost.
Eventually, FreshDirect may feed information from its Ermanco
conveyor and sorting systems as well as its Diamond
Phoenix carousels into its SAP planning software. Bar codes on
crates and packages will allow FreshDirect to pinpoint any
order anywhere in its plant at any time-or even the individual
components of an order. Tracking the pieces will let it figure
out how to process orders better. Faster processing means
less inventory on hand, lowering costs.
Trachtenberg's objective is to keep no more than 72 hours
worth of inventory at any time. If successful, FreshDirect may
be able to predict how many turkeys to load up on before
Thanksgiving and how many bunches of bananas to stock in
December versus July.
"We want to track margin by department and give managers
overall [profit-and-loss] responsibility for their goods in
real-time," says Trachtenberg, who hopes in 2004 to have managers
making decisions based on such metrics.
Trachtenberg also hopes to start cross-selling, using the
Web site. For instance, FreshDirect could suggest a red wine
to go with each order of filet mignon. Right now, FreshDirect's
site mainly helps customers with new orders by giving them
access to their previous ones.
Tenser of VSN Strategies says FreshDirect for now is angling
for that $20 a week that the typical grocery shopper
does not spend in a store. However, FreshDirect could become
time-starved customers' primary grocer if it continues
to add products.
"It's a game of stealing share from local grocers," says Tenser.
So far, he says, "FreshDirect appears to be skimming the
cream very well."
But whether FreshDirect's single-distribution-center strategy
can work in other cities remains to be seen. FreshDirect's
focus on meat and produce in particular suits its home market
well, says Tenser, because "it's hard to find decent-looking
produce at a grocery store in New York." FreshDirect trucks
also don't have to travel far, unlike what the case would be in
such sprawling cities as Dallas or Los Angeles.
Fedele does say Boston, Atlanta and Washington, D.C.,
would be natural locales for FreshDirect, along with "anywhere
people want better food at better prices." But he says Fresh-
Direct isn't in any rush to expand beyond New York.
Right now, the Long Island City plant is only operating at
12% capacity. Fedele says the warehouse should be operating
at 70% of capacity before FreshDirect would consider expansion
seriously.
"Before we expand with cookie-cutter facilities we have to get
this one right," says Fedele. "What will we run into at 30% and
50%? And 70%? Will we have to reengineer? We're stepping on
the moon here and you never know what's in that next crater."
Projects: Enterprise Planning 
