Kudler Operation Management

Introduction

Kudler Fine Foods is a local upscale specialty food store located in the San Diego metropolitan area. The company has three locations: La Jolla, Del Mar and Encinitas. Each store is stocked with the best domestic and imported foodstuffs.

Nowadays more consumers are selecting organic and natural products as a food source, because of the perceived positive health attributes. Kathy Kudler feels it is necessary to follow the trend to maintain existing customers and increase market participation. To achieve this goal, the company will be seeking local growers of organic produce to serve as a supplier. This paper will analyze the existing business processes and recommend changes in several areas to ensure success on the new strategy.

Business processes at Kudler

Kudler has a decentralized purchase process; there is no purchasing department in any of their stores. Each store manager determines the product requirements for all items to be stocked at each department. The manager will also place purchase orders directly with approved suppliers. The current purchasing process consists of the following steps:

1. Review inventory to determine which products are required, when and in what quantity.

2. Contact other stores to compare if prices are competitive.

3. Fill out the purchase order form (one standardized form for three stores).

4. Send the form via regular mail, e-mail, fax or hand in to the supplier's salesperson, plus one copy to the purchasing department manager and general accounting.

5. Receiving merchandise (verification of quantities ordered vs. received). Any discrepancy must be noted.

6. Purchase order is marked as received and then submitted to General Accounting and Purchasing. Discrepancies with the suppliers are resolved by Accounting.

7. Product is registered and stored in the warehouse, labeled and then placed in the designated area/shelve.

Organic products, especially fruits, vegetables, meats, seafood, etc., cannot be handled in the same way as conventional food items. These products require a separate stocking area from non organic foods, so that there is no risk of losing its organic characteristics. Taking into consideration the above fact, the following areas will be affected:

1. Purchasing

2. Inventory

3. Legal

4. Marketing

The purchasing must change from decentralized to a centralized system. "A central purchasing function sees the company's entire spending pattern and analyzes it to find opportunities for cost savings and efficiency." (Price Water House, 2007, p.1). Price Water House (2007) stated: "Because the central purchasing department buys in greater volume than a local business unit, it negotiates lower prices with suppliers. Furthermore, a central purchasing department helps in inventory control. The need for some materials may vary within an individual business unit, but become fairly constant when spread across the entire company. Thus, deliveries can be routed to the department needing the supplies next."

One step that will be added to the purchasing process is that the store manager must ask for a copy of the U.S.D.A. certificate and product verification form. The retailer needs to keep the invoice or packing slip from the distributor with the organic items clearly marked. This is to comply with government and legal requirements of stock recordkeeping.

Inventory of organic products is difficult to determine, because availability of items is subject to change of season and weather conditions. On the other hand, store managers and staff must be trained to differentiate and handle organic items correctly.

For example:

* Cashiers must learn how to differentiate organic items from regular products, otherwise the store can loose money each time an organic product is billed as a conventional one.

* Employees cannot use the same slicing machines/knives for conventional items and organic ones. Washing the blade each time they slice ham or cut meat will be time consuming.

* Organic products cannot be on the same shelf as non organic products as items could be contaminated. On the other hand, customers must be able to find organic products easily.

Stores must decide whether or not supply loose organic products or packed items.

On the legal side, Kathy needs to establish contract(s) with the local grower(s) and clearly stipulate the terms and conditions of the negotiation. Other aspects to be considered are the quality standards, measures to prevent contamination, packing shipping methods of products to the stores, when it will be delivered, and how it will be inspected.

On the marketing side, Kudler must design price strategy, promotion and advertising campaign, to attract new customers and change purchasing behavior of the current clientele.

Kathy will also have to decide whether or not the store will have a certification to sell organic products. According to the U.S.D.A.: "Retailers are not required to be certified, they do, however, have the responsibility of preventing commingling and contamination of organic products with prohibited substances and of keeping records that show products marketed as organic have been correctly handled from production through delivery to the customer."

Supply Chain

A supply chain consists of all parties involved, directly or indirectly, fulfilling a

customer request. The supply chain not only includes the manufacturer and suppliers,

but also transporters, warehouses, retailers, and customers themselves. (Chopra, Sunil

and Peter Meindl, 2004).

In this case, the food supply chain is consists of "buy, move, and sell". The supply chain can be negatively affected due to the limited product life of fresh produce, potential for weather and other natural forces.

A study performed by Proggressive Grocer (2006) stated that trucking companies experience two key problems:

1. Wait times to unload trucks at receiver docks.

2. Delay in loading trucks based on the availability of product.

Kudler must select suppliers