Monday, September 9, 2013

Comparing whole foods and Trader Joe’s supply chain

Comparing whole foods and Trader Joe’s supply chain

This blog post is with respect to articles relating to supply chain techniques in the first two weeks, based on a report that I had come across and based on company structures that was discussed on week #2. 

Whole foods Market, founded in the year 1978 is a company that only sells organic and natural foods. Now, with its 284 stores across the United States and a couple of stores in Canada and Great Britain it has grown to be a successful business with revenues of about 8 billion dollars in the year 2009. Whole foods has a totally decentralized back end. (The company consist of 12 geographic divisions, a national headquarters, regional distribution centers, meat and seafood processing centers and a specialty coffee/tea procurement operation.) The stores operate under minimal governance and are given maximum freedom to source a product mix that is appropriate for their location. The only governing rule put in place by the corporate office is that, stores must not purchase products with artificial flavors, preservatives, colors, sweeteners, or anything that is not naturally raised or produced. Store managers at Whole Food market, are empowered to make a decision on what products and how much to buy; therefore differentiating itself form other grocery stores. 
The overall approach of whole foods is about sustainability since, Whole Foods chooses suppliers from farms that perform organic agriculture that builds soil quality, safeguarding water quality (by preventing harmful runoff from using pesticides), and overall, protects the safety of crops produced. Apart from crop produce,  meat and animal products (milk, etc.)  are sourced from suppliers that prohibits the use of synthetic growth hormones and antibiotics.

Another such company that mostly sells organic products, Trader Joe’s started in the year 1958 sells their products a little different from their direct rivals. It is often tag lined as the 'neighborhood store' selling premium products at low prices.  Even though they manage a very secretive and a trustworthy relationship with their suppliers, Trader Joe’s are a supplier’s dream on many accounts. The company always pays their suppliers on time, offers a transparent procurement process, and doesn't charge shelving fees like traditional grocers. 
Trader Joe's limits its supply chain by selling their own in-house brands that they have created and thereby effectively reducing the number of its suppliers leading to a more controlled and efficient supply chains. The added advantages along with it is reducing its marketing costs and the number of SKUs in its stores (A typical Trader Joe would carry around 2000 SKUs compared to typical grocery store that carries around 30,000) . Trader Joe’s also maintains its payroll down by having lower head count in each location per dollar sales than its competitors. But, it makes up by investing a significant amount in employee relationships making it one of the most popular places to work in the country. It offers for its employees, the higher than usual compensation and cultivates a work culture that is based on collaboration, autonomy and fun.

Upon comparing the two companies gaining market share with their unique strategies, there's another company that is a mix between companies discussed above and amazon. 

Abe's is a company that sells natural products online. A company that is exploding given the current demand for organic foods, helps connect actual buyers seeking natural products with companies that make them. Abe's market has witnessed an amazing double digit growth for the past 5 years straight. 

A question to be answered would be with retail sales of organic food increasing from 3.6 billion dollars in 1997 to 21 billion dollars in the year 2008. Which of these companies would actually do better than the rest over a long term? 


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