Supply Chain Management for the Retail Industry: A Case Study

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Background

This case study examines the practices and market positions of two competing grocery stores, both serving local residents and university students around Corvallis, Oregon.  Both operations have mixed supply chains, with Richey’s as a small, family-owned location and Fred Myers as part of a national chain with all the pricing benefits bulk purchasing can bring (Kurt Christensen and Zhaohui Wu).  Fred Myers sells goods other than groceries in its modernized store; however, its grocery business will be the primary focus of this study in order to provide a proper comparison with Richey’s. 

Operational/Management Issues

Both operations are located within close proximity to the University, and both operations utilize local growers and suppliers to stock fresh produce.  Because Fred Myers is more convenient to the college sector of that community, they tend to sell smaller portions (individual or 2-pound bags of potatoes rather than 10-pound bags, for example), and Richey’s tends to offer more generic brand items.  The supply chains bring significant opportunities for comparison.  Richey’s obtains much of their fresh produce directly from local suppliers, with a few exceptions being winter months and the organic products from California.  Additional sources are local unified operations, small “backyard” growers, and Richey’s own farms.  Tony Richey, a descendant of the founders, keeps abreast of supply and demand for his local area through supplier contacts, local publications, and experience and is responsible for all planning and purchasing of produce to stock the store.  The supply chain for Fred Myers, conversely, is managed from its distribution center in Portland, with the pricing for those goods set at their Cincinnati headquarters. Regional offices determine the products to carry and the prices at which to sell their goods, with little to no input from the individual Fred Myers store other than mark downs on goods close to expiration dates or goods which were over-ordered. 

Qualitative and Quantitative Analysis

Historically, both operations enjoyed relative success.  Fred Myers catered to educated consumers looking for broader choices in food supplies as well as one-stop shopping for non-grocery items, and Richey’s provided its owners a smaller but reasonable profit margin through its establishment as a community store catering to long-standing loyal customers looking for quality produce at reasonable prices. The issue presenting itself is that, as new competition moves into the area and draws consumers into their stores, Richey’s is falling behind in its ability to compete based on broader product offerings and better pricing, among others, while Fred Myers is becoming more computerized and leaner in its supply line.

Proposed Solutions

A primary factor in Richey’s success is their commitment to quality product at reasonable prices. Richey’s ability to operate efficiently at a reduced profit margin stems, in part, from their ability to utilize agile supply methods in their stocks. Richey’s utilization of experience, contacts, and continuing education permitted more flexibility in determining demand and being able to take advantage of market changes as they were presented, in turn reaping the benefits of variances and small volume ordering (Chapter 7; Agile Supply Chain). While such measures have resulted in longevity and community loyalty, to continue competing, Richey’s will likely have to modernize stores and increase product offerings.  The city’s offer to establish a Richey’s presence in their lower-income sector would likely suit them well, because of the ability for Richey’s to avoid aggressive expansion to meet the offerings of new competition and also allow them to maintain their current supply-line strategies.

Fred Myers has witnessed success, but that success has occurred when competing against a non-modernized company (Richey’s) with limited product offerings.  Management has used lean, green supply techniques to control waste and, with the SCOR model of supply-line controls, has been efficient based on a pull supply response (Myerson).  With competition moving in on equal footing, in terms of modernization, attraction, broad product offerings, and price considerations, Fred Myers will have to further distinguish their presence in order to remain competitive.  Their current system relies more on top-tier controls, but they will likely need to adapt to a leagile supply design, incorporating their purchasing power, collaboration from corporate through to the distribution and regional centers, and flexibility for localized relations in order to take advantage of local, vertical integration strategies (Heizer and Cantu).

Recommendations

Similar to the challenge experienced by Honda of America in comparing its commitment to quality and overlapping considerations for ergonomics, the supply chain issues faced by Richey’s and Fred Myers can benefit from ergonomic-quality overlap (Karen E.K. Lewis and Robert T. Smith). While providing modernized shopping experiences, broad product offerings, quality food products, and efficient supplier relationships to better provide end-user pricing benefits, both stores face competition which can detrimentally impact their operations. While Richey’s is facing failed efficiency and a limited future due, in part, to the retirement of their current management with no interest from his family in taking over the business, his option to relocate into the lower-income sector may not be a profitable move given the limited life expectancy of Richey’s and the inevitable interruption to his supplier relations (Polakoff). Further, Richey’s success is due in part to the loyalty of long-standing customers who will not be following him to his new location. Nurturing his existing supply lines and expanding product offerings utilizing those existing supplier relationships (such as home baked goods from the local growers or returning those goods deemed not saleable to the supplier rather than giving them away as is the current practice) may bring additional revenue to the operation without the requisite expansion, modernization or relocation.

Fred Myers could benefit greatly by incorporating agile supply techniques into their current lean system, by establishing relationships with the local growers and “backyard” farmers to provide fresh, locally-grown produce to educated consumers looking for organic foods.  Placing some freedom with the local manager to incorporate those products can provide better responsiveness to demand, speed to the customer for fresher produce, and flexibility in product offerings ultimately distinguishing Fred Myers from incoming competition.  The market segment Fred Myers is catering to is primarily young, educated adults.  Those consumers are also likely to have or be beginning families and the importance of freshness and quality of their produce is a market advantage which should not be overlooked (Baker, Spies and Gooding).  Agility in providing freshness and responding to the demand for differentiation can be met with proper supply chain inputs – appealing to high-end and value shoppers can be better met with agile responses to demand changes which would occur as a result of crop damage from extreme weather, for example (Brandenberg). To effectively compete against each other or new market entrants, both operations will have to incorporate new products which may likely necessitate modifications to their supply chain strategies.  An agile introduction to their lean supply chain can assist Fred Myers in differentiating itself by offering a quicker response to demand for fresher quality produce.  Broadening their existing agile supply line may also help Richey’s in broadening their product offerings, serving to differentiate them from the higher-end modernized competition as the quaint, local fresh produce provider.

Works Cited

Baker, Brian, Jonathan Spies and Myles Gooding. "The Race to Freshness in the Grocery Aisles: An Agile Supply Chain Can Be a Key Differentiator." 11 May 2011. Accenture.com. http://www.accenture.com/us-en/Pages/insight-race-freshness-grocery-aisles-summary.aspx.

Brandenberg, Denise. "Difference Between Business Flexibility & Agility." n.d. Houston Chronicle. http://smallbusiness.chron.com/difference-between-business-flexibility-agility-23639.html. 

"Chapter 7; Agile Supply Chain." n.d.

Heizer, Dr. Jay and Rod Cantu. "Lean Supply Chains." n.d. Power Point 

Karen E.K. Lewis, MSIE, CPE and Ph.D., CIE, CPEA Robert T. Smith. "Relating Ergonomics To Manufacturing Quality." Orlando: Honda of America Mfg., Inc., 8-11 March 2004.

Kurt Christensen, MBA and Ph.D. Zhaohui Wu. "Retailers’ Produce and Vegetable Supply Management: Two Tales in One City." College of Business. Corvallis, OR: Oregon State University, n.d. Report.

Myerson, Paul. "Lean Supply Chain & Logistics Management." n.d. www.mhprofessional.com.

Polakoff, Sam. "The Benefits of Progressive Supply Chain Strategy." 17 February 2012. TBB Global Logistics, Inc. http://www.tbbgl.com/the-benefits-of-progressive-supply-chain-strategy/.