CASE ONE: WEGMANS FOOD MARKETS

Wegmans Food Markets, Inc. is one of the premier grocery chains in the United States. Headquartered in Rochester, New York, Wegmans operates over 70 stores, mainly in Rochester, Buffalo, and Syracuse. There are also a handful of stores elsewhere in New York State, New Jersey, and Pennsylvania. The company employs over 28,000 people, and has annual sales of over $2.0 billion. In addition to supermarkets, the company operates Chase-Pitkin Home and Garden Centers and an egg farm.

Wegmans has a strong reputation for offering its customers high product quality and excellent service. Through a combination of market research, trial and error, and listening to its customers, Wegmans has evolved into a very successful organization. In fact, Wegmans is so good at what it does that grocery chains all over the country send representatives to Wegmans for a firsthand look at operations. Superstores Many of the company's stores are giant 100,000 square foot superstores, double or triple the size of average supermarkets. You can get an idea about the size of these stores from this: they usually have between 25 and 35 checkout lanes, and during busy periods, all of the checkouts are in operation. A superstore typically employs from 500 to 600 people.

Individual store differ somewhat in terms of actual size and some special features. Aside from the features normally found in supermarkets, they generally have a full-service deli (typically a 40-foot display case), a 500 square foot fisherman's wharf that has perhaps 10 different fresh fish offerings most days, a large bakery section (each store bakes its own bread, rolls, cakes, pies, and pastries), and extra large produce sections. They also offer film processing, a complete pharmacy, a card shop, video rentals, and an Olde World Cheese section. In-store floral shops range in size up to 800 square feet of floor space and offer a wide variety of freshcut flowers, flower arrangements, vases, and plants. In-store card shops cover over 1,000 square feet of floor space. The bulk foods department provides customers with the opportunity to select the quantities they desire from a vast array of foodstuffs and some nonfood items such as birdseed and pet food.

Each store is a little different. Among the special features in some stores are a dry cleaning department, and a salad bar. Some stores feature a Market Café that has different food stations, each devoted to preparing and serving a certain type of food. For example, one station will have pizza and other Italian specials, and another oriental food, and still another chicken or fish. There will also be a sandwich bar, a salad bar, and a desert station. Customers often wander among stations as they decide what to order. In some Market Cafes, diners can have wine with their meals and have brunch on Sundays. In several affluent locations, customers can stop in on their way home from work and choose from a selection of freshly prepared dinner entrees such as medallions of beef with herb butter, chicken Marsala, stuffed flank steak with mushrooms, grilled salmon, Cajun tuna, and crab cakes, and accompaniments such as roasted red potatoes, grilled vegetables, and Caesar salad. Many Wegmans stores offer ready-made sandwiches as well as made-to-order sandwiches during the lunch hour. Some stores have a coffee shop section with tables and chairs where shoppers can enjoy regular or specialty coffees and a variety of tempting pastries.

Produce Department

The company prides itself on fresh produce. Produce is replenished as often as 12 times a day.

The large stores have produce sections that are four to five times the size of a produce section in an average supermarket. Wegmans offers locally grown produce in season. Wegmans uses a "farm to market" system whereby some local growers deliver their produce directly to  individual stores, bypassing the main warehouse. That reduces the company's inventory holding costs and gets the produce into the stores as quickly as possible. Growers may use specially designed containers that go right onto the store floor instead of large bins. This avoids the bruising that often occurs when fruits and vegetables are transferred from bins to display shelves and the need to devote labor to transfer the produce to shelves.

Meat Department

In addition to large display cases of both fresh and frozen meat products, many stores have a fullservice butcher shop that offer a variety of fresh meat products and where butchers are available to provide customized cuts of meat for customers.

Ordering

Each department handles its own ordering. Although sales records are available from records of items scanned at the checkouts, they are not used directly for replenishing stock. Other factors, such as pricing, special promotions, local circumstances (e.g., festivals, weather conditions) must all be taken into account. However, for seasonal periods, such as holidays, managers often check scanner records to learn what past demand was during a comparable period.

The superstores typically receive one truckload of goods per day from the main warehouse.

During peak periods, a store may receive two truckloads from the main warehouse. The short lead time greatly reduces the length of time an item might be out of stock, unless the main warehouse is also out of stock.

The company exercises strict control over suppliers, insisting on product quality and on-time deliveries.

Inventory Management

Wegmans uses a companywide system to keep track of inventory. Departments take a monthly inventory count to verify the amount shown in the companywide system. Each department is responsible for ordering product. Departments receive a periodic report indicating how many days of inventory the department has on hand. Having an appropriate amount on hand is important to department managers: If they have too much inventory on hand, that will add to their department's costs, whereas having too little inventory will be reflected in low profit for the department.

Employees

The company recognizes the value of good employees. It typically invests an average of $7,000 to train each new employee. In addition to learning about store operations, new employees learn the importance of good customer service and how to provide it. The employees are helpful, cheerfully answering customer questions or handling complaints. Employees are motivated through a combination of compensation, profit sharing, and benefit. In a fortune survey of employees on the best companies to work for in the United State, Wegmans ranked #16.

Quality

Quality and customer satisfaction are utmost in the minds of Wegmans management and its employees. Private label food items as well as name brands are regularly evaluated in test kitchens, along with potential new products. Managers are responsible for cheking and maintaining product and service quality in their department. Moreover, employees are encouraged to report problems to their managers.

If a customer is dissatisfied with an item, and returns it, or even a portion of the item, the customer is offered a choice of a replacement or a refund. If the item is a Wegmans brand food item, it is then sent to the test kitchen to determine the cause of the problem. If the cause can be determined, corrective action is taken.

Questions

1. How do customers judge the quality of a supermarket?

2. Indicate how and why each of these factors is important to the successful operation of a supermarket:

a. Customer satisfaction.
b. Forecasting.
c. Capacity planning.
d. Location.
e. Inventory management.
f. Layout.
g. Scheduling.

3. Comment on Wegmans' personnel management style.

4. What type of inventory review system does Wegmans use? Is this the best system that can be used in this type of supermarket chain?

PROBLEM 2A: A PERIODIC REVIEW PROBLEM.

A drugstore uses a fixed-order cycles for many of its items it stocks. The manager wants a service level of 98%. The order interval is 14 days, and lead time is 2 days. Average demand for one item is 40 units per day and the standard deviation of demand is 3 units per day. Given the on-hand inventory at the reorder time for each order cycle shown in the table, determine the order quantities for cycles 1, 2, and 3.

Cycle   On-Hand
1          42
2           8
3         103

CASE 2B: AN A-B-C ANALYSIS PROBLEM

The following table contains figures on the monthly volume and unit costs for a random sample of 16 items for a list of 2,000 inventory items at a health care facility

1. Develop an A-B-C classification for these items.

2. How could the manager use this information?

3. Suppose after reviewing your classification scheme, the manager decides to place item P05 into the "A" category. What would some possible explanations be for that decision?

PROBLEM 3: QUANTITY DISCOUNT PROBLEM

A company will begin stocking remote control devices. Expected monthly demand is 800 units. The controllers can be purchased from either supplier A or supplier B. Their price lists are as follows:

Ordering cost is $40 and annual holding cost is 25 percent of the unit price. Which supplier should be used and what order quantity is optimal if the intent is to minimize total annual cost?