Question

Case Study - Whole Foods Market

Overview

Whole Foods Market is a supermarket chain that specializes in fresh, organic produce from local sources. As an international company with locations around the world, it has a large operation to watch over and a very specific mission to uphold: to sell the highest-quality natural and organic products available.

Sticking to this goal and keeping up with the demands of a rapidly expanding business aren’t always easy, however. In order to stay committed to stocking sustainable goods, Whole Foods relies on an organizational structure that combines aspects of a mom-and-pop operation with a traditional corporate hierarchy. Thanks to this unique organizational structure, the company has been able to expand to 360 stores and hire more than 58,000 employees without sacrificing its core principles.

Whole Foods got its start when John Mackey and Rene Lawson borrowed money from friends and family to open a small natural food store in Austin, Texas. The couple soon ended up living in the market after they were evicted from their apartment for storing some of their grocery stock there. Fortunately, business began to boom once the pair took on a couple of partners and merged with another store. But they quickly faced another huge setback when the most destructive flood Austin had experienced in 70 years took its toll on the market. Along with incurring damage to their building, the store also lost all of its produce and inventory. Thanks to a massive community cleanup effort, however, the market was soon back in business.

Whole Foods has never forgotten that lesson—that having a local, grass-roots structure sensitive to drastic and sudden changes in the business environment can keep an organization nimble and responsive. In the company’s early days, the staff was small enough that everyone could do every job. While this kept things running smoothly at first, the situation had to change as the company grew and opened more stores. It divided the labor between the four partners, with each specializing in one or more of the tasks critical to the business. After designating the leaders for departments like finance, human resources, and sales, Whole Foods began to look like a big company.

But John Mackey and his partners still wanted their stores to appear like small local markets, not corporate mega-grocers. That meant they had to make tough choices, like whether they should centralize supply in warehouses or depend on separate, local suppliers in each region they had stores. Whole Foods ultimately opted for the latter option. To stay responsive to market changes, each region received its own manager and the autonomy to make certain decisions about supply sources and pricing based on the needs of that region, without being slowed down waiting for responses from the home office. This decentralized structure gives Whole Foods the flexibility to adapt to important changes without involving needless bureaucracy.

Whole Foods Market continues to expand into new markets around the world. Despite that fact, it has managed to keep what is unique about its culture and pure about its mission: focusing on great, natural sources at the local level.

Economies of scales are important in business. In the case of Whole Foods, it made sense to centralize supply and apply concepts of Supply Chain Management so that cost of inventory could take advantage of quantity discounts to lower cost of goods.

Why do you think they decided not to do that and instead, allowed local stores to handle their own supply of goods?

Answer 1

Although procuring the goods on a large scale in a centralized supply reduces the cost of procurement as they are able to achieve economies of scale, but despite that Whole Foods decided to allow local stores to handle their own supply of goods.

This is because of the below mentioned reasons:

• Centralized supply raises thewarehousing and inventory handling costs : If there is a centralized supply,large amount of inventory is to be purchased and stocked in a centralised warehouse,which raises the inventory handling and warehousing costs.
• Local store incharges have good relations with the local suppliers : Local store incharges have good relations with the local suppliers and thus can bargain with them,which is not possible in centralized supply.
• Perishable goods : Few goods are perishable which can be served and sold fresh only if it is procured from the local supplier.
• Easy to Manage : As the Whole Foods is going for mass expansion with their stores present worldwide, it becomes quite difficult to manage centrally. It is rather easy to manage if each store owner takes teh supply from local supplier.