Kudler Fine Foods Outsourcing Plan

Abstract

Kudler Fine Food has plan to contract with local growers to provide a supply of organic produce to its stores. This plan will affect the current operations and business processes of Kudler Fine Foods.

Kudler will need to identify parts of its current supply chain that will need to be modified or changed. Kudler will also need to adopt new methods of quality control to ensure that its customer continue to get the best product it can deliver. This paper will examine the effect, benefits and challenges that will arise from this action.

Kudler Fine Foods and Local Growers

Using Local Growers

"The cost of a pound of locally grown organic garlic: $6; the cost of an acre of farmland on Salt Spring Island, B.C.: over $50,000; the availability of farmland on Salt Spring: nil; the wages of many local farmers: from $5 to $10 per hour. Having the tastiest, freshest, most diverse, best quality, local organic farm produce available in Canada: priceless." (Burton, H. [2006] Eat locally grown produce: do yourself and a farmer a favor. Catholic New Times. Retrieved January 11, 2007.) This was a good lead to an article in the Catholic New Times and it also illustrates the biggest benefit of supporting local growers. Kudler Fine Foods has planned to outsource its need for organic produce to local growers. Kudler is jumping on the bandwagon and joining the trend of supporting the local growers like Whole Foods and Wal-Mart.

This move by Kudler to use local growers will allow Kudler to position itself as a company that cares about the community by touting its ties with the local farming community. This is a good move for Kudler Fine Foods. However, Kudler Fine Foods should still consider keeping one or two of its current national supplier so that if there was a case in which the local growers could not supply the produce to meet its demands, there is a secondary supplier to rely on. This move will affect Kudler's current supply chain process as well as how each of the produce managers in each store will handle daily operations.

Kudler's Supply Chain

Kudler's move to use local growers to supply its organic produce will affect its supply chain. The changes will affect purchasing, accounting, inventory management, forecasting and merchandise selection.

Kudler's current practice for purchasing is to allow each of the department managers in each store to determine requirements for the items each department sells and place purchase orders directly with suppliers using a purchase order form that is standard between the three stores. The department managers are responsible for obtaining the best price, quality, and delivery possible. They also receive and verify all orders in terms of whether they received the correct items and quantities and in undamaged conditions. Received items are documented on an Order Received form and sent to Accounting so that invoices for the items can be paid.

The three department managers are then encouraged to check with each other to benchmark pricing, quality, and delivery of the merchandise they each ordered. They are encouraged to combine orders between stores to increase opportunities for discounts on larger or multiple orders.

Prepared purchase order forms are either mailed, handed to supplier salesmen, faxed to suppliers, or sent by E-mail if acceptable to suppliers. Whatever the method used, a purchase order form is always filled out initially and becomes the key tracking and financial document for an order.

Changing from a national supplier to a local supplier for its organic produce needs, Kudler will need the produce department manager in each store to work together and order large quantity or place multiple orders in order to keep cost down. One of the disadvantages of using local growers is the cost for the produce will be higher than from national suppliers. If Kudler would like to seek profitable returns on this commitment to use local growers, the purchasing process may need to move to a centralized purchasing process. Moving to a centralized order process, Kudler will be able to coordinate its purchases with advertising as well as streamline forecasting for the produce department.

Kudler will not need to alter the way it prepares its advertisement for the local newspaper. Kudler's current advertising process is to have Kathy Kudler coordinate the advertising after her weekly operations review meetings with the store managers from each store. There is no need to change this current advertising process.

Kudler currently collects data for accounting using their point-of-sales (POS) systems at each of the stores. This process will still be a viable process even if they change over to using local growers. The majority of the accounting process should be able to remain the same. The produce from the local growers will need to be added to the system, so when a transaction is made, it will be recorded. Creating new accounts in the chart of accounts to track produce supplied by local growers will enable Kudler to better forecast its needs. Because Kudler does not have data on how well the produce from local growers will sell, these account tracking will help Kathy Kudler and her team to make decisions on future purchases.

Kudler's current practice is to carry high-level of inventory to maintain the high-level of customer service. Kudler will need to review its current supply chain strategy and do a better job of measuring its supply chain performance. The two common measures which Kudler will need to evaluate will be inventory turnover and weeks-of supply. (Chase, R. B., Jacobs, R. F., & Aquilano, N. J., 2006., p. 4) These measurements will be crucial to Kudler so that it will not tie up its funds in supply and because Kudler will be dealing with perishable goods, it is to Kudler's interest to only have enough supply to cover its customers' demands.

Kudler's current practice for forecasting is to take 2-3 years old data and use it as a baseline for forecasting its purchases. This is an ineffective way of forecasting because this strategy does not deal with real time data. This strategy does not take into account daily needs. It can only be use to predict buying habits based on past experience. It does not account for change in economy.

An example would be, one of the years the data that were captured by Kudler happens to be a year where the economy was good for everyone. Kudler's customers, during that particular year, bought more high-end items than normal. Because of this data point, Kathy Kudler decides with her team to stock up on the same high-end items this year. The economy changed