Business News Event Analysis (strategic assessment course)


Whole Foods New Stocking System Angers Customers and Frustrates Employees

Description of the Situation Comment by Susan Steiner: Clear description of the situation

Back in August, Amazon acquired supermarket chain Whole Foods for $13.7 billion (Grant, 2018). However, a recent expose by Business Insider revealed the tech giant may be left with more than they bargained for as employees and customers are now speaking out about the massive shortages that have plagued many stores following an operations change.

At the start of 2017, Whole Foods opted to switch to a new buying system, order-to-shelf (OTS). In theory, this would reduce time and improve efficiency by having the majority of goods move directly to shelves from the shipment truck (Grant, 2018). While designed to cut costs and better manage inventory, many stores have seen massive shortages as result of the system angering customers and frustrating managers. An employee in Sacramento, California, explained to Business Insider, “The system is now set up to pretty much only have enough product to keep the shelf full and no extra.” As a result, her department’s back-stock area is now 25% of the size it was before the implementation of OTS (Peterson, 2018).

Other employees interviewed had similar complaints of continually running out of common produce items like potatoes and onions and, at times, have had entire aisles bare. According to an assistant manager in Chicago, “If a truck breaks down and you don’t get a delivery, then you have empty shelves.” (Peterson, 2018)

Even analysts monitoring Whole Foods have begun to take note of these shortages. Barclays’ Karen Short reports visiting a store that was missing cookies, crackers, popcorn, canned beans, canned peaches, seltzer, and water. In addition, she explained that employees were, “utilizing facing to make shelves appear more stocked than they actually were — so, the out of stocks could have been more pervasive than we were able to notice. We also note that frozen seafood out of stocks have persisted for many weeks at one store we routinely check.” From their perspective, executive issues and broader price cuts must be implemented in order to avoid stalling traction on sales. (Meyer, 2018)

While Whole Foods executives have promised to take a deeper look at the issue, they still attribute a large portion of the problem to increased sales following price cuts after Amazon’s acquisition and recent weather issues affecting product delivery (Meyer, 2018). However, employees have noted that OTS has not only led to food shortages but also a decrease in employee morale due to its militaristic regulations (Bariromo, 2018). The system requires managers to regularly walk through store aisles and storage rooms with checklists to ensure every item is in its place and there is no excess stock. If there is, the manager of that area is written up. After three write-ups, the individual is liable to be fired. According to one employee, “It’s like taking a really high-stakes exam with 100 questions every day, and if you miss a single question you fail” (Peterson, 2018).

Relation to Management Concepts

From a value propositions standpoint, Whole Foods has chosen to focus on operational excellence through the implementation of their OTS system. However, issues within the core processes of this system have led to major improvement challenges. A major component of Whole Foods’ core processes is their information technology systems which schedule and track food delivery. However, these systems lack the foresight and ability to accommodate for missed trucks and increased consumer demand for specific products. Comment by Susan Steiner: Bottom line: Operational excellence was not achieved. The concept of total cost includes employee and customer time, not just dollars and cents.

It will be interesting to see if Amazon will be able to correct this Whole Foods initiated change. …. Whole Foods announced today (3/12) that it would be meeting with vendors to address the situation

Additionally, the new management system harshly punishes manager’s minuscule errors and has led to a shift in the company’s culture. Employees lack the motivation to truly “attack” the new system as it appears to focus more on inflicting consequences than promoting the rewards of a system that has dramatically reduced back stock. Employees are often scored based how well they stocked shelves and are quizzed on best-selling items and sales goals for the week with points being deducted if they answer a question incorrectly. Those who score less than an 89.9 are liable for termination. The stress and rigor of the new system has made employee meltdowns while on the job a common occurrence. Even at home, employees have still been known to feel the stress of the job with one describing, “I wake up in the middle of the night from nightmares about maps and inventory.” (Bartiromo, 2018).

While Whole Foods executives have promised to investigate the supply chain incompetencies caused by the implementation of OTS, the broader issue is less about operational excellence and more about restoring Whole Foods core vision and ideology internally. The declining employee culture has yet to be addressed. Two of Whole Food’s main core values are to “satisfy, delight, and nourish our customers” and to “support team members happiness and excellence,” (Whole Foods, 2018). Both of these values appear to be violated through the processes of OTS. If Whole Foods is unable to restore the relationship between their core ideology and this new operations system, the company is likely to collapse internally. Additionally, with such a variety of substitutes, the necessity of zero waste needs to be evaluated. As one customer explained, “There’re so many options now that it seems like a terrible idea to have your shelves understocked,” (Meyer, 2018). Comment by Susan Steiner: I think this is the crux of the matter

Takeaways/ Lessons Learned

One of the main lessons I took away from this situation is that people should always be a consideration when implementing wide scale operational changes. While OTS appears to provide many benefits, I am still confused as to why employee regulations had to take such a strong shift with it. Personally, I know I would not want to work for a company that left me in tears over something as simple as stocking a shelf! Comment by Susan Steiner: Yes! In MGT 330 we didn’t spend enough time on the organizational change chapter. I assume that you can now see its importance.

Additionally, efficiency must always be measured against effectiveness. While the newly implements OTS system is efficient, from a customer’s perspective it continues to be ineffective in enabling one to purchase everything on his shopping list, and from an employee’s perspective, it is ineffective in creating a safe and friendly work environment. While I believe the system can be updated and improved, is 100% efficiency the goal in an industry with such a variety of substitutes? Comment by Susan Steiner: Remember my discussion that an ineffective system can’t be efficient. The current situation at Whole Foods proves that point. Comment by Susan Steiner: It can be if the system is both efficient and effective. At one point in time, WalMart was the “gold standard” for inventory management, which allowed the company to keep prices low and shelves always stocked.

References

Bartiromo, M. (2018, February 2). Why Whole Foods employees are crying on the job. Retrieved form https://nypost.com/2018/02/02/why-whole-foods-employees-are-reportedly-crying-on-the-job/

Grant, M. (2018, January 18). Whole Foods customers angry over shortages; employees blame “militaristic” inventory system. Retrieved from
http://www.foxnews.com/food-drink/2018/01/18/whole-foods-customers-angry-over-shortages-employees-blame-militaristic-inventory-system.html

Meyer, Z. (2018, February 8). Empty Whole Foods Market store shelves anger shoppers. Retrieved from https://www.usatoday.com/story/money/2018/02/08/empty-whole-food-market-store-shelves-anger-shoppers/308599002/

Peterson, H. (2018, January 18). “Entire aisles are empty”: Whole Foods employees reveal why stores are facing a crisis of food shortages. Retrieved from http://www.businessinsider.com/whole-foods-employees-reveal-why-stores-are-facing-a-crisis-of-food-shortages-2018-1

Whole Foods. (2018). Our Core Values. Retrieved from http://www.wholefoodsmarket.com/mission-values/core-values

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