Amazon-Whole Foods Will Implement Lean/JIT Systems
In June of 2017, Amazon announced that they would be buying the organic grocery chain Whole Foods for $13.7 billion. This move has been closely watched by many and is a topic that has been discussed extensively on this blog. Amazon will be introducing new processes and technologies that will enhance the in-store experience for Whole Foods customers, such as checkout-free shopping. Similar to the e-commerce industry, Amazon entering grocery store market will force other companies within the industry to meet their benchmark for efficient processes and value delivery or be forced out of the industry entirely.
The supply chains operations within the grocery store industry have gone relatively unchanged for the last fifty years, their processes and logistics have not been highly reactive to the steep increase in technology during that time period. In fact, the only change in technology that had an impact on the supply chain in the last fifty years was the introduction of the barcode and scanner inventory method. Other than this small change, grocery stores and supermarkets have continued operations just as inefficiently as they always have. One of these inefficient processes is the timing and amount of inventory delivery. Because of last of sophistication within their logistical operations, many grocery stores have a large surplus of inventory that is rarely all sold by its sell by date. Also, the current inefficient check out method leads to long waiting lines during most busy times. A poor in-store experience and the inefficient handling of inventory leads to razor thin profit margins for most grocery stores and super markets. Because of the industry giants who have large portions of the market share, companies have been able to get by with their less than satisfactory operations. Amazon’s plans to implement lean systems and a “just-in-time” logistics philosophy for Whole Foods will put a lot of pressure on other companies to rethink operations and processes.
Many people view Amazon as a retailer or an e-commerce company, but I believe that they are actually more of a logistics and supply chain company. They deliver product from distributers and suppliers to customers in a timely and efficient manner, Amazon’s supply chain expertise has allowed them to flourish in today’s economy. Amazon will incorporate “just-in-time” inventory in order to maximize their efficiency. They will refresh inventory supplies several times a day with constant new shipments, this will be timed based on each products demand. This system will greatly reduce the number of days product spends in inventory. The quicker inventory turnover will help alleviate the problems that other grocery stores have with their profit margins. Because of the huge influence Amazon has over their suppliers, they can force them to meet their tighter efficiency demands. Amazon’s implementation of lean systems and perfection of Whole Foods’ supply chain will completely change the way the grocery industry operates and make it much more profitable.
My question from this article is, which topics and strategies that we have discussed in class do you think other grocery companies should use in order to keep up with Amazon?
https://seekingalpha.com/article/4086428-genius-amazons-whole-foods-acquisition
The biggest bottleneck in grocery stores is the lines. Most of the time, the lines people complain about at grocery stores are the checkout lines. However, there are other lines at grocery stores that I find equally, if not more, annoying. For example, at my grocery store at home the line at the deli section is really long. Within a 40 minutes grocery trip, 20 minutes can be spent waiting in a line to get a pound of sliced turkey. Sometimes, customers take numbers but end up leaving before putting in an order because the wait is too long. While this is obviously annoying for the customers, it is also bad for the grocery store because it is losing business. Michael mentioned how grocery stores haven’t changed the way they do business in almost 50 years, and thinking about it, that is definitely true. Checkout lines and other lines in grocery stores are evidence of this. I found this article written five years ago and thought it was funny because nothing has changed since it was written-https://www.washingtonpost.com/news/the-switch/wp/2013/12/03/its-2013-why-are-we-still-waiting-in-checkout-lines/?utm_term=.a6c97dd82360. The basis of the article is why are people still waiting in lines to checkout their groceries in 2013? It offered suggestions such as paying with self-scanners or with personal iPhones. Now, five years later, the basis of the article is still true. Even though technology has only improved since 2013, no improvements have been made yet. This is where I think Amazon will be a really good fix in the grocery market. Before, grocery stores didn’t have to do much motivation to improve because all grocery stores operated the same way. Now that Amazon is entering the market, grocery stores will have to change their ways in order to compete. Amazon has always excelled at doing things better and more efficiently than their competitors, probably because of what Michael said of Amazon really being a supply chain/logistics company. If Amazon was able disrupt the competitive world of retail, I think Amazon will do even better in a market that is doing such a bad job already.
I completely agree with Jordan. I have suffered the unbearable lines at almost every grocery store I’ve gone to. It’s really interesting to me how grocery stores are able to maintain customers despite their lack of innovation and unwillingness to solve the problems facing customers. As Jordan mentioned, I think this completely has to do with the market. If no other grocery store is innovating to offer their customers better service, why would a company waste their time and money doing it themselves? I’m very excited to see how Amazon, who is an industry leader in efficiency, affects not only Whole Foods but also the entire grocery market. I wonder if some of their techniques used at their fulfillment centers might find it’s way into the inventory processing at Whole Foods and subsequently other grocery stores.
I found it very interesting how the grocery store market has remained unchanged for this long a period of time. The industry as a whole has not been up to date with the technological advances of our society. I never realized just how inefficient these grocery stores were with the amount of surplus in their inventory levels. Because of these inefficiencies, it makes sense that Amazon would make this drastic change with Whole Foods.
I agree with your point that Amazon can most definitely been seen as a logistics and supply chain company. Some may say they have mastered the art of delivering products to their customers in a timely manner. Due to the company’s innovation, Whole Foods implemented this “order to shelf initiative”. The process “has the potential to reduce labor and inefficiencies”, as described by Supermarket News. But, in order to be effective, the company must have a lot of coordination within their supply chain.
I wanted to look at the effectiveness of this new implementation to see if Whole Foods was able to handle these new coordination efforts. In my research, I found that this new method has left customers very angry. In “’Entire aisles are empty’: Whole Foods employees reveal why stores are facing a crisis of food shortages”, department managers are claiming they are running out of products in every department. As a result of these empty shelves, the company is losing sales. The implementation of the new JIT method has ultimately caused more harm than good for the company, which is very shocking.
http://www.businessinsider.com/whole-foods-employees-reveal-why-stores-are-facing-a-crisis-of-food-shortages-2018-1
http://www.supermarketnews.com/retail-financial/why-more-retailers-are-using-order-shelf-system-manage-inventory
I learned to hate the Whole Foods line over the summer in Washington, D.C. If I didn’t have time to shop on the weekends I would be stuck hitting the 5:30 or 6pm foot traffic and at least a 20 or 30 minute line. I would always try to hop in the under 5 items line if I just needed a few things, but even that was too crowded sometimes. I think self-checkout at Whole Food physical locations could help with this, since it just requires more space and machines instead of workers prone to human error. Since Amazon and Whole Foods are now conquering the e-commerce space, other chains will simply have to follow suit. Kroger, Walmart and other large stores are creating their own platforms to online order, including Kroger’s ClickList and Walmart’s Grocery Pick-up. However, technology is not always reliable, so Target is betting on the customers who are fed up with the at-home approach and are forced to come into a physical store. A Forbes article says, “Target is equipping its sales associates with mobile technology to take on a major buzz kill for shoppers and a big sales drain for retailers: Out of stock merchandise, be it a lipstick promoted in an email blast that’s sold out once a consumer’s in the beauty aisle to a store that doesn’t stock those mid-rise jeans in a size 14.” By using tech inside the stores, Target is trying a different approach to compete with Amazon online.
https://www.forbes.com/sites/barbarathau/2018/02/07/how-target-kroger-and-design-within-reach-are-tapping-tech-to-improve-your-shopping-trip/#dbdc9a22d759
I am an avid grocery shopper. In my opinion one of the simple pleasures in life is going to the grocery store (which my mom thinks is absolutely crazy) because I really enjoy strolling through the aisles and seeing all the cool, new products on the shelf. What I dislike most about my trips to the store though are the lines. Sometimes I only have a few items to grab and I could wait in line for 10-15 minutes. I agree with Jordan that the biggest problem at grocery stores and most outstanding, are the checkout lines. I have seen improvements made over the past few years such as the self checkout and the 10 items or less line which work to reduce wait times. Still, these bottlenecks always seems to be backed up at every single station. So what is the answer to changing this and making it more efficient? My idea would be to scatter checkout areas throughout the store that way people will converge at different areas and if the lines are too long they may walk to another one which will take more time, therefore stalling buildup. Another idea, which I actually experienced in Fresh Market a few days ago, is to pay while the items are being scanned. Usually you have to wait until the cashier is done ringing up your items to then insert your card, skip through the million buttons, and sign your name. In this case, I inserted my card midway through the scanning and by the time I finished signing my name, the cashier was done and I could simply grab my items and go. Much faster and efficient.
You mentioned that technology in grocery stores had hardly changed over the past 50 years which I agree with but there has been instrumental change in other, more important aspects of stores. Catering towards people’s needs, allergies, and dietary restrictions has been at the forefront because technology isn’t necessarily important in a grocery store. Organic, locally grown goods, exotic produce, in-store production, dining options, and specialized foods have all made huge impacts on food retail in the past 30 years.http://fortune.com/2017/03/15/supermarket-changes-fresh-goods/ Now that grocery stores have met the customer’s desired standard in terms of food they can focus on technology. I read an article that predicts of incredible change in the design and technology of grocery stores in the next 50 years including pop up markets that have touch screens specialized by dietary need and automatically deliver orders to you on spot. Who is to say that these Future Markets will actually become a reality but Whole Foods is well on its way with its continued advanced innovations.
https://www.fastcompany.com/3036119/this-is-what-your-grocery-store-will-look-like-in-2065
I am very interested to see what new and innovated ideas that Amazon will pioneer in speeding up the efficiency in grocery stores. As many people have said already, grocery stores and their methodology basically have not changed in 40 or so years. I really don’t believe that there is any such business in this country that has not had any progressive change, on scale of efficiency, customer convenience, or cost cutting, in over 40 years!
One of the biggest issues that grocery stores seem to have is efficiency in general. From making sure they have enough inventory, to fully stocking shelves, and finally, managing lines, grocery stores can honestly be a nightmare. Whole foods is no exception to this. On any given day, you can walk in and can find one item completely bought out on one of the shelves, and then, when you finally do find what you want, if you did not time it just right, you could easily get stuck in a line for upwards of 30 minutes just to purchase some every day essentials.
Honestly though, this is not just limited to grocery stores. In Target, Walmart, and other big box stores you often find yourself stuck in lines for large amounts time as well. Albeit, all of these stores have begun the process of including self-checkout as an available option in order to speed up the process a bit more, but even then, people often find themselves waiting in those lines too. This process, as a whole, needs to change.
And Amazon is about to change the game entirely. They opened one of their first brick and mortar stores last month, coupled with a brand new idea: line-less check out. Basically, customers walk in, grab what they need, and walk right back out the door. The sensors and cameras around the store will track the customer and what they pick up and put back, and once they leave, will bill whatever card is already on file. It was technology that had never been done before, or even though of, that took 4 years to produce. Yet, just like that, Amazon is now changing the way we do our shopping in every aspect of our lives.
https://www.reuters.com/article/us-amazon-com-store/amazons-automated-grocery-store-of-the-future-opens-monday-idUSKBN1FA0RL
One question that comes to my mind when considering Amazon’s implementation of lean processes and “just in time” inventory management is cost. While I agree there are certainly improvements to be made in terms of decreasing food waste, which ends up costing grocery stores in lost revenue, I am not sure that such a drastic increase in other processes will prove to be worth it. If they really end up making shipments multiple times a day, this means that costs for everything from transportation to labor for managing shipments to labor for stock stores will skyrocket. I’m sure Amazon will look into how these lean processes will affect their bottom line extensively, but without a cheaper way to fill grocery stores with food, I am suspicious of the efficacy of this policy. That being said, Amazon is likely in the best position possible to implement such changes given their expertise in the logistics industry.
I absolutely hate waiting in line; it’s simply just a major pet peeve of mine. As a result, I really do not like going to the grocery store, because it is almost inevitable that there will be a bottleneck at the check out stations. Therefore, I am extremely excited about advances that Amazon is making in this industry. For example, with the acquisition of Whole Foods, I plan to take full advantage of the online shopping of groceries if Amazon is able to figure out how to lower the transportation cost to a reasonable price. I have confidence that they will. I would much rather sit at a computer and buy groceries than have to go to the store and deal with a number of difficulties including parking, waiting lines, and time constraints. I am also excited about the potential of check-out free shopping in Amazon/Whole Food brick and mortar stores. As a matter of fact, my assistant lacrosse Coach and I were talking about this Amazon advancement just yesterday. Both of us had full confidence of Jeff Bezos and the management team there. I feel that Amazon is changing the world, and I am excited to reap the benefits.
If interested, please find an article below explaining how Amazon and a few others are teaming up in an effort to change the health care system in America:
https://www.usatoday.com/story/money/2018/02/25/amazon-jpmorgan-berkshire-health-care/350625002/
I think Michael makes a good point that grocery stores haven’t had to change for decades, because they don’t really have to. They essentially have a monopoly on the food business, as although yes, people can go to restaurants, the general population is eating most meals at home with food they get from the supermarket. Eating is a basic human necessity, so grocery stores can be as inefficient as possible and people will still go and buy from them, because they need to. This “checkout line-free” shopping market with just-in-time inventory management seems great in theory, but as Nick said, it does seem to have a greater cost than any added benefit and could potentially fail for a variety of reasons. The biggest thing for Amazon is if they plan to really invest in this idea, they need to go all in. I think that if they really put time, effort, and money into eliminating lines and ensuring this implementation works smoothly, they can change the dynamic of the grocery shopping experience and have a significant advantage against all other stores.
I feel one of the main reasons grocery stores hasn’t changed in the past 50 years is that many people are resistant to change or automation in how the pick/receive their food. While Amazon may try delivery and attempt to streamline product time in inventory, my mother will always want to feel the fruits and vegetables she buys and would never be convinced to order something like that online. Because of this there will always be produce that doesn’t sell and causes waste. This is one of the large bottlenecks in grocery stores and is one of the largest costs they have to face. If they were able to sell all of their inventory that comes through their doors they would be much more profitable but usable items get passed up often for superficial defects. Where I see Amazon revolutionizing the market is in their ability to more efficiently ship items across the country to their various stores and lowering the price that way. I also see them incorporating home delivery of staples to homes that are uniform such as milk, cereal, pasta etc. This would allow Amazon to enter the grocery market in a large way as currently Whole Foods only holds about a 6% market share. This could grow quickly through increased affordability and accessibility to the greater public as Whole Foods has typically been a very high quality brand.