Operations Management at Kudler Foods

Operations management is the process used by an organization to obtain materials, the process of transforming the product, and the process of providing the final product to the end user. Operations management consists of three stages: acquiring inputs, controlling the conversion process

and delving the product to the user (Gomez, Meija & Balkin 2002). At Kudler Fine Foods (Kudler) this translates to purchasing products, preparing them for sale and selling to the customer (Apollo 2008).
Kudler Fine Foods (Kudler) has experienced significant growth since its inception five years ago and is now focusing on expanding services while improving the efficiency of its operations. Kudler has made the decision to contract with local growers of organic produce to improve the efficiency of its operation while expanding its services.

This paper will identify the business processes at Kudler that could be affected by this decision and will explain how they would be affected. This paper will also describe the affect of this decision on Kudler’s supply chain. Finally, this paper will describe the quality control tools and performance standards that Kudler would need to put in place to ensure the effectiveness of its operations (Apollo 2008).

Business Processes
Business processes refer to the various systems employed by a business to make it run efficiently (Eduka 2008). For example, the way an organization manages its purchasing, inventory control, quality management and operations systems, are all part of the business processes (Chase, Jacobs & Aquilano, 2005). Contracting with local organic growers will most likely have a significant impact on the purchasing and inventory processes at Kudler.

Currently purchasing practices at Kudler are not efficient. Each of the three store managers are responsible for determining items to sell as well as negotiating individually with suppliers for the best price, quality and delivery possible. In a report prepared by the University of Nebraska addressing the feasibility of working with local growers, it was determined that one of the best indicators of success with a local grower is developing a relationship with the grower (2003). Kathy Kudler is the best person to build that relationship and will need meet with the growers, personally, to negotiate the best prices for the produce as well as to determine the most efficient ordering procedures and delivery schedule to maximize efficiency.

Kudler’s store managers are encouraged to work together to place orders, however, without a formal process in place, most purchasing decisions are made separately (Apollo 2008). Kudler’s finance and accounting department has developed purchasing and receiving procedures, but the procedures are not being used by the individual stores. Prepared purchase orders are mailed, handed to the suppliers, faxed or sent via e-mail. These purchase orders become the key to tracking orders and serve as the basis for payment to the suppliers. The purchase order system will need to be refined and standardized for all growers.The current networking capabilities and available inventory reports will need to be used to determine the demand at each store as well as to track inventory. This will require additional support from the purchasing staff at corporate (Apollo 2008).

Purchasing organic produce from local growers will require better planning and processes to eliminate waste and bottlenecks. In order to realize a cost savings through bulk ordering, the process flowcharting will need to be revamped in order to consider the combined ordering of organic produce and inventory controls for all stores (Chase, Jacobs & Aquilano 2005). Kudler may benefit from conducting a benchmarking study to determine the best practices for purchasing using the practices from a firm such as Whole Foods, just as they are benchmarking Nordstrom’s for best practices in customer service (Apollo, 2005).

Inventory Control
The individual stores at Kudler, are responsible to receive and verify all shipments to determine if the correct items and quantities were received and in what condition. Received items are documented on a form and sent to accounting to reconcile and pay the supplies. The department managers determine the items to stock as well as the number of them to order, based on data provided from prior sales. Inventory control at Kudler is a challenge because there must be enough product to satisfy the customer needs without having excess inventory wasted through spoilage while tying up valuable resources.
Due to the nature of organic produce being generally seasonal, the best way to monitor the inventory would be through updating technology at all levels Kudler to generate inventory and purchase reports. This will allow those responsible for purchasing to adjust purchases in response to the inventory on hand and current demand. The reports generated will increase the accuracy of the forecasting future inventory needs and trends for each of the stores instead of relying on historical data as they do now (Apollo 2008). This will also reduce waste caused by overstocking, since organic produce has such a short shelf life.

Operations Systems
Kudler’s operations system consists of outdated hardware and software, using Windows 97 with bubble jet printers at the stores as well as a 56k modem to connect to the network. The POS cash register information is transmitted via the network on a daily basis through uploads at the store and downloads at corporate.

In a special report written by Liz Parks and published by Supermarket News (Parks 2005), independent grocers were encouraged to invest in technology as a way of streamlining operating costs. Chase, Jacobs & Aquilano (2005) discuss the benefits of using Enterprise Resource Planning (ERP) computer software to manage business operations with a single integrated set of corporate data. Having an ERP in place allows an organization to streamline processes through the reduction of time needed to process supplier payments or process customer orders. Kudler would be able to use an ERP to forecast future needs to assist with accurate purchasing, track vendor and retail pricing as well as other financial information. The ERP would allow Kudler to track the sales performance of new items that are introduced to determine if they are products that they want to bring into inventory. The investment in new technology is highly recommended. New technology may be an option for Kudler, however, cost of the purchase, installation and training would be a major factor which would influence the decision as opposed to upgrading current systems.

Supply Chain
According to Chase, Jacobs & Aquilano (2005) supply chain management is applying a total systems approach in order to manage the flow of the materials (such as organic produce) from the suppliers (local growers) through receiving, to the end user (the customer). Kudler’s decision to use local organic farmers for their produce can have a negative impact on its supply chain. Due to the nature of organic produce being seasonal, optimizing ordering techniques of the produce would benefit the company. Fullscope discusses the unique problems faced with the supply chain of organics in a white paper published in 2007. One of the biggest factors to consider in the supply chain is that of time. When dealing with organics, companies can not use traditional “order due date” as the driver for their business processes, due to the short shelf life of the organics. Additionally, communication is crucial to the success. Growers will need to communicate shortfalls and Kudler will need to be prepared to have alternative sources to keep its inventory at desired levels.

Quality Management
Current quality control measures at Kudler are subjective and left up to each individual store manager to determine the quality of the product that is received.

Quality Control Tools and Performance Standards
Quality control measures are crucial to the success of any organization. Four basic methods of managing quality exist: total quality management, kaizen, just-in-time, and process reengineering.
“Total quality management (TQM) is based on the belief that all of an organization’s activities need to be focused on improving its product” (Gomez-Meija & Balkin, 2002 p 13). TQM affects management, employees, customers, suppliers and the production process. Kudler’s overall products will not be affected by the decision to purchase produce locally and therefore, TQM is not needed.

Kaizen is the process of continuous improvement in the production system using small, incremental improvement in the production process (Gomez-Meija & Balkin, 2002). Kudler may want to integrate Kaizen theory when analyzing the suppliers to use as well as when developing new flow charts, in order to eliminate wasted employee activities caused by duplication and redundancies.

Just-in-Time-Systems is based upon the concept that the product (organic produce) is available to the customers when they need it, not before. Drawbacks are that it does not allow any buffer and may defeat the goal of having inventory on hand for customers (Gomez-Meija & Balkin, 2002). This would not fit the customer service levels that have been set by Kudler and would result in having low stock or no stock more frequently, which could result in lost sales.
Process re-engineering is a method of changing the entire production process rather than making incremental changes. All processes of the organization are viewed as a complete process and would involve changing all processes at once. It focuses on the process and not on the individual activities with a goal to reduce waste and improve profitability (Gomez-Meija & Balkin, 2002). This method seems to be the best fit to make such a major change and purchase organic produce from local growers. It will involve changing all processes at Kudler from negotiating with the growers all the way through the sale to the end user.

Kudler will need to implement quality controls for the organic produce purchased from local growers to ensure that purchases are as defect free as possible.

In the plan to contract with local growers of organic produce, Kudler will need to take careful steps to ensure the success of this new initiative. Implementing and creating new processes which will stream line operations while keeping down costs, will have many benefits for Kudler. These benefits include improving purchasing procedures, inventory and quality management control, upgrading the existing operating system while maintaining the supply chain. By addressing organizational changes that can be applied to the make the transition smooth, the company will be able to incorporate local organic growers as their suppliers. In doing so, Kudler will be successful in achieving its goals to expand services to its customers and to realize continued growth.

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