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April 3, 2000

Online Grocer Takes Different Approach
Webvan Group's distribution model is powered by Optum's warehouse-management system

By Alorie Gilbert

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ebvan Group Inc. is tackling the logistical challenge of expanding its grocery-delivery service to 14 cities, with state-of-the-art distribution centers in each of those metropolitan areas. The click-and-mortar operation will be supported with a warehouse-management system from Optum Inc.

Webvan hopes the sophisticated setup will help it avoid the fate of Web grocer Peapod Inc., which saw its stock tumble from a high of $11 in February to a low last month of $2.94 amid financial and management troubles. Whereas Peapod's distribution model is based on sending employees to local stores to gather items for delivery, Webvan is investing in automated distribution centers. "In this business, you must have the right combination of technology and business processes," says Peter Relan, Webvan's senior VP of technology. "The more you throw a lot of people and labor at it, the less profitable you become."

The Optum package, already in use in Webvan's Oakland, Calif., facility, will help the company manage the flow of activities at the distribution centers. Relan says Webvan chose Optum because of its ability to adapt to the configuration of Webvan's warehouse operations and integrate with other systems, including its custom materials-handling and order-management systems, PeopleSoft Inc. accounting application, and transportation-management software from Descartes Systems Group Inc.

Webvan's distribution model guarantees delivery of goods within 30 minutes of a specified time. But it's not cheap. Webvan reported a $144.6 million loss on sales of $13.3 million in 1999. A large part of its expense--between $25 million and $35 million for each distribution center--is investment in fulfillment infrastructure, says Dan Moser, Webvan's director of business development.

The company expects its San Francisco Bay area operation to be profitable by October and its other distribution centers to be profitable within 15 months of operation. "Logistics technology is vital," says AMR Research analyst Chris Newton. "These companies aren't in the grocery business; their business is delivery."

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