Whole Foods Struggles to Implement New System
Just-in-time (JIT) inventory is a dream come true for most supply chain professionals. As long as the supply can match customer demand, most professionals appreciate this strategy because of its ability to increase efficiency and decrease waste. As a result, inventory costs are also minimized. However, the JIT inventory system is not always implemented successfully. Therefore, this post is going to explain how JIT inventory works and then examine which industries would benefit the most from using this system. After this, I will talk about Whole Foods’ and their recent implementation of a JIT inventory system.
How Just-in-Time Inventory Works
Basically, the JIT inventory system is implemented by scheduling orders and deliveries so that the products are only delivered or provided when needed. Because of the complexity involved, careful planning, efficient ordering, and reliable suppliers are very necessary in order to implement a successful system. In addition to this, the JIT inventory system works best in industries such as the automobile industry and the fast food industry.
In the automobile industry, cars take days if not weeks to assemble. Because of this, all of the necessary parts are not needed on the first day of assembly. Therefore, a JIT inventory system will schedule the delivery of parts on the day that part is needed. For example, if the frame of the car is put together on Monday, the doors won’t be needed until Tuesday, and then the windshield may not even be needed until Wednesday. Therefore, automobile companies that use a JIT inventory system will schedule the delivery of the doors for Tuesday and the delivery of the windshield for Wednesday. This will save them storage costs as well as increase efficiency within operations.
In the fast food industry, JIT inventory is almost a universal system. Although the actual food, condiments, and utensils are kept on hand, the food is not prepared until the customer places an order. This is in contrast to having a bunch of pre-made meals ready to hand out whenever. This eliminates waste for a fast food company because it eliminates the risk that the pre-made meals will go unordered.
Issue with Whole Foods’ New System
Now, although a JIT inventory system may benefit a lot of companies, it could prove to be a problem for some. Take Whole Foods for example. A little over a year ago, Whole Foods decided to change their supply chain to something similar to JIT inventory called “order to shelf.” Basically, according to the article, this system orders goods once inventory levels fall to a specified amount. Whole Foods adopted this system in order to promote fresh foods and reduce the time that goods are kept in the stock room before hitting the shelves. Theoretically, this is an amazing idea with many benefits. However, Whole Foods has struggled to implement it flawlessly. Recently, shoppers have experienced many shortages on a variety of foods due to the new system. One shopper claimed that there were no grapes for her to buy in three straight visits to Whole Foods. This is unacceptable for a company such as Whole Foods whose mission states that they “aim to set the standards of excellence for food retailers.”
So what do you guys think? Should Whole Foods resort to a more traditional approach and buy in bulk so that shelves will always be stocked? Or should Whole Foods iron out the kinks to this new system?
References:
https://www.usatoday.com/story/money/2018/02/08/empty-whole-food-market-store-shelves-anger-shoppers/308599002/
https://www.investopedia.com/ask/answers/051215/what-are-some-examples-just-time-jit-inventory-processes.asp
“Order to shelf” is an old practice that is gaining new attention because of Whole Foods as well as Target. The idea of “order to shelf” sounds like it would work, especially for grocery stores. Inventory gets replenished as soon as it dips below a certain point. Most of the inventory in a grocery store such as Whole Foods are perishable items so it would make sense to replenish stock when necessary and limit the amount of wasted food. This sounds like the perfect plan. According to the article “Why more retailers are using an order-to-shelf system to manage inventory”, this system requires a lot of coordination and communication for it to work. A store manager not properly trained may be one of the problems. The article describes it best, “when there’s a communication breakdown between retailer and distributor, you can end up with the food shortage and empty shelves that have customers and employees up in arms.” This is exactly the case with Whole Foods. As you mentioned, JIT works well in the automobile and fast food industry. Fast food restaurants utilize the pull method where the production of the good is dependent on the customer. We can also relate the automobile industry to the pull method. For Toyota’s case, limited inventory is kept on hand and is replenished as vehicles are sold. The pull method works well with JIT. Whole foods and grocery stores in general, are in between the push and pull method and for this reason JIT would not work. For example, produce items are put out similar to a buffet (push). As customer demand increases, more inventory is ordered to satisfy customers (pull). The “order to shelf” system does not satisfy this happy medium.
Daniel,
This is a great topic to consider and I like how you didn’t only give a good example of when this system would be used, you also highlighted a bad example. A JIT inventory system definitely has its advantages when operated well but, as Whole Foods is experiencing, operating the system poorly is detrimental and could result in some very unhappy customers.
Personally, I think Whole Foods should work on the problem and try to iron out the kinks. Whole Foods prides itself on being a more fresh and organic place to buy groceries but stocking the shelves with bulk ordered items is just like any other traditional grocery store. I believe that if Whole Foods took this traditional route, it would lose some of its customer base. Figuring out this JIT-like inventory system would be very beneficial because it would allow Whole Foods to always have the freshest possible products on the shelves, and this is what most customers are looking for when they go to shop at Whole Foods.
https://www.usatoday.com/story/money/2018/02/08/empty-whole-food-market-store-shelves-anger-shoppers/308599002/
Daniel, I think you bring up a good point in talking about Whole Foods just in time strategy that they identity as “order-to-shelf.” I personally do not shop at Whole Foods very often, if at all. However, when I have been in the store I get the feel that people who shop there are searching for high quality goods. I can see how the company would have adopted such an inventory strategy since their shelves are not being emptied as frequently as a high inventory type company like Walmart. Whole Foods targets a smaller consumer group and seemingly should not have to. However, in the recent transition to an Amazon ownership, popularity has grown around the company as people are anxious to see what direction the brand will move in. Amazon is indeed an exciting company, so this is no surprise. Although an increase in the buzz surrounding Whole Foods is good, retaining the same inventory strategy to appease what is now a larger and trendier consumer base may not work. Your article does a good job of bringing light to this issue where shelves are remaining empty and leaving consumers unhappy. I went ahead and piggybacked off of your article and found my own that further discusses this issue.
http://www.grubstreet.com/2018/01/whole-foods-empty-shelf-problem.html
Even employees are complaining about the OTS system, where penalties are imposed for a system that is innately troubled. According to Grub Street, Amazon stated that they were not aware of such issues. One question I’d like to ask from this article is what direction should Whole Foods and Amazon move in? Will their OTS system become successful or will it leave both consumers and employees feeling empty handed?
Kyle,
When I was reading this post, I too wondered if Whole Food’s acquisition by Amazon is playing a part in this new inventory strategy. It is apparent that they are working to change the structure of the company. Their recent switch in inventory management is a clue that they are trying to innovate in order to reach the maximum profit and efficiency. However, I wonder if they are changing things too quickly? After the acquisition, Whole Foods began selling their in-house brand 365 Everyday Value of Amazon as well and it quickly took off. Within the first four months of online sales they made $10 million dollars in sales and grew at a rate of 9% per week. While these numbers are extremely impressive, it seems like the company might be biting off more than they can chew. Because it is an in-house brand it means that the must dramatically increase manufacturing. On top of that implementing a new inventory management system, which includes many 365 Everyday Value products, seems like a major challenge. I do believe that Whole Food will be able to manage it and I look forward to seeing what they do next.
Sources:
http://www.businessinsider.com/whole-foods-brand-thrives-on-amazon-2017-12
Daniel,
Your discussion and examples of the JIT inventory system highlight the importance of understanding that although efficient, it may not work for every type of company and every industry. Whole Foods and other grocery chains should not implement this strategy. It would be more difficult and more labor-intensive to implement the JIT strategy. A grocery store is thought of differently in a consumer’s eyes – a stockpile of various foods versus an on-demand order like McDonald’s. Additionally, this could be detrimental to Whole Food’s revenue. So many consumers buy items that they were not originally intending to buy. If there are limited numbers of products on the shelves or no products, then it is difficult or impossible for consumers to impulse buy food. It would be incredibly hard to track impulse buying and what consumers impulse buy just because it is different for every customer.
Daniel,
Your discussion of the JIT inventory system in regard to Whole Foods is very interesting. I have noticed that at times, Whole Foods will completely run out of a popular item. For example, Whole Foods sells Siggis yogurt, which comes in a variety of flavors. I have noticed that often the most popular flavors are empty on the shelves, while a large sum of the more unpopular flavors remains. This product is particularly tricky because the product expires quickly, thus I can infer that a lot of yogurt flavors that are not popular go to waste. The use of the “order to shelf” system explains this phenomenon.
I think Whole Foods should continue to implement this new system; however, they should collect data regarding how quickly products run out in relation to other products. Whole Foods should alter this system, so it can better predict when and how quickly certain products will run out. Instead of waiting to order more of the product when inventory falls to a certain level, perhaps the products that often need to be replenished can start this process earlier than other products. In other words, the “order to shelf” system can be altered in a way that replenishes the most popular products before all others, even if the inventory level has not yet fallen below the amount that beckons the system to replenish the supply.
Through continuing this system, each Whole Foods store can collect data regarding shelf-life of products and lag time of replacement to better estimate when inventory should be replenished for each product in the store.
Daniel,
The USA Today article that you used as the backbone for your post was a great example for this topic of the course. It’s that Whole Foods is struggling to implement this order-to-shelf (OTS) strategy, but the cause of this issue is far more complicated. There were two pieces of information from the USA article that stuck out to me. The first was that Whole Foods began implementing the OTS strategy before Amazon acquired the company. I am not sure if I would categorize Amazon as “lean,” because they keep a high volume of inventory on hand in order to be flexible in their product offerings and expedite the cost of delivery (which is often two days or less). That being said, if difficulties in distribution are the cause of Whole Food’s empty shelves, Amazon’s expertise could certainly help.
Second, the article mentioned that a major factor in management’s decision to transition to an OTS system was to increase the consistency of the products ordered. At the beginning of Chapter 6, there is a fairly interesting case on Aldi Grocery Stores and their success at implementing lean systems. One of the reasons Aldi has been so successful in Europe (and more recently, in the US), is their smaller store sizes and selling fewer variations of each product. This description of Aldi certainly does not describe the sprawling stores and seemingly infinite number of brands and product lines that characterize Whole Foods stores. The use of a lean supply and distribution system complements Aldi’s smaller, more simple retail locations—it will be interesting to see if Whole Foods is able to implement leaner systems despite its vastly different supply and layout strategies.
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Daniel,
I definitely think that Whole Foods should stick with their “Order to Shelf” philosophy and work out the kinks. In the long run, that system will minimize waste and they will be able to have a constant flow of fresher produce than buying in bulk. One interesting thing about Whole Foods is that they often use locally sourced produce instead of a national supplier. This makes their implementation of their new system much more difficult because it relies on individual managers to ensure that the location has sufficient supply from their local suppliers at all time. That can often vary depending on your location. It will be a lot easier for a Whole Foods in California to access fresh produce during the winter months than a Whole Foods in the Northeast. Maybe locations in places where fresh produce is not available year round they can use more of a bulk approach to cut down on the costs that continuously shipping small batches of produce would incur. That is something that individual store front managers would have to consider when planning their inventory models.
Daniel,
Thanks for sharing this post about Whole Foods. Just in Time inventory is a technique that is definitely helpful for foodservice companies. You mentioned fast food in your post, and Jess’s post definitely shed some more light to the fact that using JIT is almost a necessity in that space.
It is a shame that a retailer with such a reputation for quality and high prices like Whole Foods would face such a fundamental problem as it makes changes to its inventory system. My father owns a small fresh-meat market that sells myriad specialty grocery items. Forecasting customer demand for those grocery items is definitely one of his biggest purchasing decisions, and too often I’ve witnessed product thrown away when it reaches its expiration date. However, now that Whole Foods has Amazon to back up its purchasing and delivery decisions, it would stand to reason that the system would be fixed.
As Amazon constantly disrupts industries it touches, we should see Whole Foods’s ability to be competitive increase, and a development of most of its processes. According to an article from Deloitte, nearly $22 billion in market cap disappeared from grocery chain stocks on the day of the announced merger. If Whole Foods cannot deliver better quality service (and full shelves) to its customers, we’ll see a reversal of that trend, and some severe shakeups at the firm.
Hopefully Whole Foods will work out its troubled with the new OTS system, and Amazon’s impeccable delivery and negotiating power with suppliers will achieve new success for the firm.
Thanks again!
https://www2.deloitte.com/us/en/pages/consumer-business/articles/amazon-whole-foods-acquisition.html
Daniel,
It seems like Whole Foods is facing quite the dilemma. Do they deviate from the literal name of the company to ensure that inventory is always in stock? Or do they potentially increase waste and increase inventory management costs to keep their customers happy? At the moment, neither Amazon nor Whole Foods knows the answer. In agreement with Lily, the only thing they do know is that something must change and soon.
To answer the questions I proposed above, I would start by implementing some sort of medium between the two extremes. The entire essence of Whole Foods is to serve fresh food, and I certainly do not think they should do anything to cross their business model and foundation. Instead of only using their Just-in-Time-like inventory system, they need to make this mindset and philosophy their way of life. It shouldn’t just be something Whole Foods does, it should be something Whole Foods is. I’d also suggest implementing the 5S model that we talked about in class. Whole Foods should be sorting, setting in order, shining, standardizing, and sustaining their inventory in order to reduce waste and further align the actions of the company with their name.
While continuing to bolster their healthy and fresh image, Whole Foods absolutely needs to meet their customers in the middle. Consistently running out of stock is unacceptable, especially for a major chain. One thing I would suggest that Whole Foods do is study individual products and their trends as well as how these individual products behave in groups. No matter what, Whole Foods should always have the least desirable item of a product category in stock. The article below uses bread as an example. It would be nice for Whole Foods to always have freshly baked bread, but at the very least, they need to have the basic, packaged bread categories stocked. This applies to all fresh items that Whole Foods sells. This strategy alone won’t fix the problem, but if Whole Foods can pair it with other strategies like closer supplier ties, they might see some tangible results and be able to bridge the gap between fresh food and consistent inventory.
Link: https://www.relexsolutions.com/five-good-habits-that-make-for-better-supermarket-inventory-management/
Daniel,
I find this issue with Whole Foods very interesting to look at from different angles. As you mentioned, Whole Foods has been using more of a “pull” method for lean management by waiting until there is customer demand (nearly empty shelves) before ordering a restock. When I first read this, my first thought was that it was great because it would cut back tremendously on the problem of food waste. It is far too often that I see companies such as bakeries toss out countless amounts of food at the end of each day because they did not match production with demand. Whole Foods, by implementing this lean system, would likely cut back on food waste by as much as 70%, saving them thousands on costs and creating a more sustainable business practice environmentally and economically.
The issues with this process that you mentioned, such as customers not having grapes, seem to me like problems that will be fixed with some “Kaizen.” The issues which I did not consider were the psychological ones. Like Lily mentioned in her comment, the inventory process has a strong negative influence on employees. There is increased tension and stress as employees fear for being written up and deal with increased customer complaints. Similarly, I believe that some process improvement and changes to standard business policies can help this problem disappear within a couple of months, allowing the lean system to function efficiently as it should.
The one problem that I can not see being avoided is also psychological. When a customer walks into the store and sees fully stocked shelves that are neatly organized, they have no problems with going around and taking whatever products they see. On the flip side, if they walk in and only see a handful of a certain product on the shelf, they may think those leftovers are the rejects. Take chicken breasts for example. When the shelf is full, you feel like you can pick out the best one of all and you will be happy. You feel spoiled and happy to have the control to pick your breasts. On the flip side, if there are only a dozen breasts left, you might view them as the breasts that nobody else wanted and not buy them at all because you don’t have the luxury of selection anymore. Although this idea may not apply to everything, it is still a possible unforeseen consequence of Whole Food’s lean system and could cause a material decrease in sales.
Joe, I really enjoyed your comment! I found your discussion about the psychological implications of Whole Food’s order-to-shelf strategy to be very interesting and I couldn’t agree more. While in many situations, sold out products mean that the product is in high demand and is extremely popular, in this instance it isn’t because of popularity, but simply because there is no inventory for Whole Foods employees to stock the shelves with. Customers choose to shop at Whole Foods because of its high quality and premium products, and empty shelves gives off a completely different vibe, almost of a discount grocery store such as Aldi. If this issue continues to persist, it will definitely hurt Whole Foods reputation with shoppers and drive down sales, something that Amazon doesn’t want to see after its recent acquisition.
Daniel,
Thanks for your post! I found Whole Foods’ order-to-shelf (OTS) inventory management system to be extremely interesting. While its purpose is to streamline and track product purchases, displays, storage, and sales as well as help Whole Foods cut costs, manage its inventory better, reduce waste, and clear out storage, its just-in-time inventory method seems to be causing more harm than good for Whole Foods.
According to Business Insider’s article “Entire Aisles Are Empty: Whole Foods Employees Reveal Why Stores Are Facing a Crisis of Food Shortages”, the order-to-shelf management system is significantly hurting employee morale at Whole Foods. According to the article, “regional and upper store management know about this. We all know we are losing sales and pissing off customers. It’s not that we don’t care — we do. But our hands are tied.” Further, if anything is off with product displays, the shelves are not properly stocked, or if there is too much inventory in storage, the manager in charge of that area of the store is written up. After three write-ups, they can lose their job. Multiple employees stated that these inventory tests had “crushed” morale in Whole Foods stores because workers are terrified of missing some small detail that ultimately costs them their job.
As you mentioned in your post, the “just-in-time inventory is a dream come true for most supply chain professionals” however this method has turned into a nightmare for Whole Foods and is negatively impacting not only consumer’s perceptions of the brand but also its own employee’s perception and morale. Something definitely has to change.
Sources: http://www.businessinsider.com/whole-foods-employees-reveal-why-stores-are-facing-a-crisis-of-food-shortages-2018-1