{"id":455,"date":"2015-11-30T16:56:43","date_gmt":"2015-11-30T21:56:43","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/ocados-sci-fi-ballet\/"},"modified":"2015-11-30T18:23:08","modified_gmt":"2015-11-30T23:23:08","slug":"ocados-sci-fi-ballet","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/ocados-sci-fi-ballet\/","title":{"rendered":"Ocado\u2019s \u2018Sci-Fi Ballet\u2019"},"content":{"rendered":"<p><a href=\"http:\/\/www.ocado.com\">Ocado<\/a> is an online supermarket, founded in London in 2000 by three former investment bankers who sought to fundamentally change the way people shopped for groceries.<\/p>\n<figure id=\"attachment_448\" aria-describedby=\"caption-attachment-448\" style=\"width: 300px\" class=\"wp-caption alignright\"><a href=\"https:\/\/i4tsk12in2b2y7uts14c528g-wpengine.netdna-ssl.com\/wp-content\/uploads\/sites\/4\/2015\/11\/ocado2.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"size-medium wp-image-448\" src=\"https:\/\/i4tsk12in2b2y7uts14c528g-wpengine.netdna-ssl.com\/wp-content\/uploads\/sites\/4\/2015\/11\/ocado2-300x169.jpg\" alt=\"Tim Steiner, CEO and founder of Ocado Pictures by Glenn Copus\" width=\"300\" height=\"169\" srcset=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/11\/ocado2-300x169.jpg 300w, https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/11\/ocado2-600x338.jpg 600w, https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/11\/ocado2.jpg 634w\" sizes=\"auto, (max-width: 300px) 100vw, 300px\" \/><\/a><figcaption id=\"caption-attachment-448\" class=\"wp-caption-text\">Tim Steiner, CEO and founder of Ocado<\/figcaption><\/figure>\n<p>Superficially, the Ocado\u00a0value proposition is that of the wider ecommerce sector, offering range and convenience through reliable online ordering and delivery. However, what differentiates its\u00a0business model &#8211; for example, from Amazon Fresh or &#8216;taxi for grocery&#8217; players like Instacart &#8211; is its operational sophistication.<\/p>\n<p>Rather than rely on third party stores and delivery infrastructure, as many competing services do, Ocado has developed a capital intensive operating system that allows it to out-compete incumbents and challengers alike in terms of reliability, range and convenience. At scale, the cost advantages of such an operating model drive a virtuous circle of operating leverage, investment and innovation in the business. Despite some challenges in its technological development, the company is expanding across the UK, has signed a fulfilment deal with a major UK retailer, and is likely to strike a deal to license its IP with\u00a0a major retailer in Europe or the US in the near future.<\/p>\n<p><strong>Operations<\/strong><\/p>\n<p><a href=\"https:\/\/i4tsk12in2b2y7uts14c528g-wpengine.netdna-ssl.com\/wp-content\/uploads\/sites\/4\/2015\/11\/ocado2.jpeg\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-447 size-medium alignright\" src=\"https:\/\/i4tsk12in2b2y7uts14c528g-wpengine.netdna-ssl.com\/wp-content\/uploads\/sites\/4\/2015\/11\/ocado2-300x180.jpeg\" alt=\"ocado2\" width=\"300\" height=\"180\" srcset=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/11\/ocado2-300x180.jpeg 300w, https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/11\/ocado2-600x360.jpeg 600w, https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/11\/ocado2.jpeg 620w\" sizes=\"auto, (max-width: 300px) 100vw, 300px\" \/><\/a><\/p>\n<p>To understand the operating model, the company\u2019s first market, London, serves as a good example.<\/p>\n<ul>\n<li>Inbound trucks deposit food directly into the company\u2019s main warehouse, situated 20 miles outside Central London.<\/li>\n<li>Once unloaded, food is sorted into categories, and loaded onto conveyors which whisk items to the relevant \u2018aisles\u2019\u00a0(e.g.\u00a0meat is kept in a chilled area of the site; fresh groceries are stocked in another cooled area). All SKUs are tagged and sorted by product type.<\/li>\n<li>When an order is placed by a consumer, a\u00a0one hour delivery\u00a0slot is\u00a0offered instantaneously based on predictive algorithms.<\/li>\n<li>At the same time, pickers select items from shelves and loaded them onto conveyors; items are then sent to be bagged.<\/li>\n<li>The algorithms developed by Ocado\u2019s 300 developers ensure the vast network of conveyors can group orders which sourced from the warehouses various departments into a single batch by the time they reach the bagging area.<\/li>\n<li>Here, orders are deposited into plastic bags by an automated machine, and loaded into plastic crates. These are lifted into trucks, which drive to one of Ocado\u2019s \u2018spokes\u2019, situated at strategic points around London. While throughput times vary according to shelf life, fresh goods can pass from an inbound to an outbound truck in 2 hours.<\/li>\n<li>Once at the &#8216;spokes&#8217;, trucks load into smaller vans, which complete deliveries on pre-automated routes optimised for time. The operational precision is such that crates are loaded in the same sequence as the order route:\u00a0a driver simply has to pull out the next crate, knowing it will be the next one on\u00a0the delivery route.<\/li>\n<\/ul>\n<p>This short video details some of the technology behind the Ocado operation. In the words of one reporter, to watch the operation in action is like having a seat at &#8216;a kind of sci-fi ballet.&#8217;<\/p>\n<p><a href=\"https:\/\/www.youtube.com\/watch?v=wKpyPO76yZ4\">https:\/\/www.youtube.com\/watch?v=wKpyPO76yZ4<\/a><br \/>\n<strong>How do the business and operating models support each other?<\/strong><br \/>\nThe business model \u2013 to deliver leading customer service, range and convenience \u2013 is supported wholly by the innovative operating model. Ocado has relatively small overheads compared to peers, will enjoy tremendous operating leverage as it scales, and has a production and distribution system that is rapid and flexible enough to deliver excellent service at a price point that will be able to become more competitive as time goes on.<\/p>\n<p>The capital intensity and the focus on intellectual property and innovation are at the heart of the company\u2019s success. The company has spent 15\u00a0years iterating on its model, developing solutions in-house, and sustaining losses in order to achieve a competitive advantage over other retailers in terms of delivering the key value proposition to consumers. This translates into 99.3% order\u00a0accuracy, and 95.3% on-time delivery.<\/p>\n<p>While the ride has been rough for investors, who endured a decade of operating losses, Ocado&#8217;s\u00a0long term approach appears to be finally paying off.<\/p>\n<p><em>Sources:<\/em><\/p>\n<ul>\n<li><em>Ocado&#8217;s customer website: www.ocado.com<\/em><\/li>\n<li><em>Ocado&#8217;s corporate website: http:\/\/www.ocadogroup.com\/investors\/results-centre.aspx<\/em><\/li>\n<li><em>Financial Times coverage:\u00a0http:\/\/www.ft.com\/cms\/s\/2\/64e18c6c-8144-11e5-8095-ed1a37d1e096.html#axzz3t08vJZxq<\/em><\/li>\n<li><em>Metro (UK newspaper) coverage: http:\/\/metro.co.uk\/2013\/07\/08\/xbox-controllers-and-19-miles-of-conveyor-belts-inside-ocados-warehouse-3867993\/<\/em><\/li>\n<li><em>Telegraph (UK newspaper) coverage: http:\/\/www.telegraph.co.uk\/finance\/newsbysector\/retailandconsumer\/11376182\/Ocado-to-open-fourth-distribution-centre.html<\/em><\/li>\n<li><em>Own research (site visit, 2013)<\/em><\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>Ocado is often thought of as an online alternative to incumbent food retailers. But the operational sophistication, backed up by 400 programmers and a clutch of patents, reveals a business that is taking a very original approach to grocery.<\/p>\n","protected":false},"author":1175,"featured_media":459,"comment_status":"open","ping_status":"closed","template":"","categories":[132,19,33,20,56,21,16,44,55,134],"class_list":["post-455","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-business-model","category-consumer-tech","category-food","category-food-delivery","category-grocery","category-logistics","category-retail","category-supply-chain-management","category-technology","category-uk"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/the-tom-challenge-tom-winners-and-losers-assignment\/","yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Ocado\u2019s \u2018Sci-Fi Ballet\u2019 - Technology and Operations Management<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/ocados-sci-fi-ballet\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Ocado\u2019s \u2018Sci-Fi Ballet\u2019 - Technology and Operations Management\" \/>\n<meta property=\"og:description\" content=\"Ocado is often thought of as an online alternative to incumbent food retailers. 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