Operations Management

The trend of Americans to eat healthier while exploring new and exotic foods to whet their appetite for variety has sparked a marked increase in sales in the gourmet food industry whose current sales are in excess of 41 billion dollars.

(Progressive Grocer, 2006)

Retailers understand that the growth of gourmet foods is the result of Americans' interest in healthier consumption. Whole Foods Market, the Austin, Texas-based leader in the retail natural food sector, released its own study late last year, which said nearly two-thirds of Americans have tried organic foods and beverages in 2005, an increase from the 54 percent of consumers who said they sampled those foods in both the 2003 and 2004 surveys. Ten percent of Americans consumed organic foods several times per week, up from just 7 percent last year, according to the 2005 Whole Foods Market Organic Trend Tracker. (Progressive Grocer, 2006)

One company that has found its niche in the gourmet and fine foods market is Kudler Fine Foods. Kudler Fine Foods is a local upscale specialty food store located in the San Diego metropolitan area (Kudler Web Page). The company has been very profitable thus far, but corporate managers recognize a necessity for change and within the next 12 months, Kudler plans to increase customer loyalty by offering added high-margin services, leveraging the firm's better understanding of customer purchase patterns, and providing more efficient operations.

Profitability will increase by cost reductions accomplished through supplier partnering programs. (Kudler Fine Foods) To this end, the company plans to start contracting with local organic food growers, which will necessitate key supply chain and operations management changes. The success of this new initiative will be greatly dependent on keen analysis of current operational processes. In this paper, we will discuss the current processes at Kudler Fine Foods and what changes the company will have to make if they are to be successful with this new initiative.

According to Gomez and Balkin, "Operations management is the process an organization uses to obtain the materials or ideas for the product it provides, the process of transforming them into the product, and the process of providing the final product to a user". (2002). If they are to be successful in their approach of using local growers for their organic foods product line, Kudler will have to make some strategic changes. One thing that will have to change is the way they make purchases.

Currently, at Kudler Fine Food, there is no central purchasing department although standard purchasing procedures are in place. Each of the three department managers in each store determines requirements for the items their department sells and places purchase orders directly with suppliers using a purchase order form that is standard between the three stores. It is the responsibility of the Department Managers to obtain the best price, quality, and delivery possible. It is also the store manager's responsibility to maintain a higher than normal inventory to keep pace with consumer demands, without having excessive product levels. A customer service level of ninety-five percent had been a general goal for a number of items carried. (Kudler Fine Foods) By using local farmers, Kudler will potentially increase their customer service level when it comes to organic foods because they will have quicker availability of these items. However, some changes are required.

Because Kudler has not been using the services of local growers, it is necessary for Kudler to develop relationships with these farmers. The company needs to establish a central purchasing department led by an experienced buyer whose focus will be on getting the best products for the best price. It is the responsibility of the managing buyer to negotiate contracts with suppliers and ensure that the products purchased meet quality standards and to ensure that there are adequate inventory to satisfy the needs of the stores to meet consumer demands. The manager of the purchasing department will be responsible for creating purchasing and inventory criteria, meeting the local farmers and developing sound business relationships with them. Once Kudler has established relationships with local farmers, other vendors in the community will want to offer their services as well. Buy using local vendors, Kudler will enhance their supply chain performance and corporate profitability.

"The supply chain represents the flow of materials, information, and finances as they move in a process from supplier to manufacturer to wholesaler to retailer to consumer". (Balanced Scorecard) "The idea of supply chain management is to apply a total systems approach