Operations Management

Operations Management

Kudler Fine Foods (KFF), a gourmet upscale epicurean food shop, offers a wide selection of the freshest ingredients for gourmet meals and the tools a gourmet cook needs in the metropolitan area of San Diego (University of Phoenix, 2008). Kudler Fine Foods, founded by Kathy Kudler, envisioned a shop in which consumers would consider a one-stop shop for all their gourmet cooking needs. Kathy expanded her epicurean food shop from one location to three locations within five short years. KFF is considering placing organic produce in their stores in an effort to continue to offer the highest quality products to their customers. This paper addresses the current business processes and the supply chain at KFF that will be affected by the addition of organic produce. The paper will also discuss quality control tools and performance standards needed to ensure effective operations at KFF.

Process Changes

As KFF considers adding organic produce to their product line, KFF must consider how their current business process will be impacted. Media outlets continue to report on concerns surrounding pesticides and the negative affect on a person’s overall health. “On Feb. 4, the ABC News correspondent John Stossel hosted a report on ''20/20'' that probably surprised many viewers. It made the case that organic food is not necessarily healthier than conventional food -- and might actually be dangerous” (Rutenberg, 2008). However, additional research has found that organic produce is just as safe as regular produce. “''It's logical to worry about pesticide residues, but in our tests, we found none on either organic or regular produce” (Rutenberg, 2008). Market surveys completed in 2006 by KFF’s customers concluded that 38% of responders surveyed disagreed with the claim that “merchandise sold is a good value for the money” (University of Phoenix, 2008). Organic foods are often considered a high quality product and fit quite nicely in KFF’s existing business plan. KFF must determine if offering both organic and regular produce will be profitable. Offering two similar products at different price points, does give customers a choice; but KFF was not founded on customer choices, but rather high quality products in a single location. KFF must consider the impact organic produce will have on purchasing, inventory and forecasting, and marketing.

Purchasing will need to identify how inventory controls, new suppliers, and levels of quality will work together to ensure success in the organic produce market. The short shelf life of organic produce must be considered in establishing a buying price that will be cost effective for KFF and for their customers. “Prices for organic foods and fiber reflect many of the same cost factors as conventional items in terms of growing, harvesting, transportation and storage. However, all of these factors are generally higher for organically produced goods” (Haumann, 2008). KFF is relying on consumer’s desire for healthier produce to offset these costs. To remain competitive in the produce market, organic produce prices must be attractive and competitive with other organic shops. Considering the quantity of organic farms in the San Diego area, KFF must rely on competition to keep cost competitive.

“The shelf life of many organic ingredients is different than for conventionally grown ingredients because preservatives aren’t added. This means a manufacturer handling organic products may have to run smaller batches because less is available at a time,” said Phil Margolis of Neshaminy Valley Natural Foods Distributor, Ltd.” (Haumann, 2008). Considering these constraints, KFF must evaluate inventory more frequently and with more precision. KFF must work closely with organic produce suppliers to ensure quick replenishment of inventory as constraints must be established to ensure quality produce is available. To ascertain an inventory balance that provides the greatest profit and least risk to the partnerships with local growers, KFF must continually monitor inventory and daily sales. KFF must also consider the ratio of cost and demand for organic produce.

“Forecasting which items to carry and how much to carry in the future has always been a challenge. Kathy and her department managers utilize historical data on which items and what quantities were sold in the last 2-3 years, especially on holidays. This provides an indication of which items and what quantities to carry in the future. Forecasts are basically an extrapolation of past history to the future. In an increasing sales market, the trend extrapolating forecast works fairly well.... This is a reoccurring topic in monthly operations review meetings in which monthly sales are reviewed for the last year and monthly forecasts prepared for the next three months, a quarterly forecast for the quarter after that, and for six months for the next six-month period after that. The accuracy of this forecasting method has not been as good as desired and has resulted in the obsoleting of some merchandise and in offering others at drastic discounts“(University of Phoenix, 2008). With organic produce, KFF must alter their approach to forecasting. Looking at the past 2-3 years of sales, will be their best bench mark, but with higher priced and healthier products, it will be harder to predict the future sales and will need to be addressed much more often. Working directly with experience organic produce suppliers will also help to create the best possibly forecast plans.

In up-scale shops, business owners must continue to provide specialty foods based on trends of popular foods found in gourmet cooking magazines and television programs. Adequately predicting customer buying trends allows KFF will increase customer traffic in their shops. Reviewing market surveys and current sales figures will minimize potential risks and will maximize growth potential at KFF in the produce market.

Organic produce is a rapidly growing market. As people continue to look for ways to healthier diet alternatives, KFF must develop a marketing program specifically promoting organic produce. Promoting organic produce in a shop that offers many alternatives to traditional grocery stores is a key to KFF’s success in this venture.

Supply Chain

In addressing KFF’s goals, organic produce suppliers must competitively price