Tag: grocery

OM in the News: Berkeley Bans Junk Food in Grocery Checkout Aisles

The city of Berkeley, California, is trying to make its residents healthier, reports CNN.com (Sept. 25, 2020). As part of a health initiative, Berkeley is getting ready to become the first city in the US (in March, 2021) to require large grocery stores to stop selling junk food and candy in checkout aisles. So now instead of candy and soda and other high calories items, shoppers can expect to see fresh fruit and whole grain alternatives at checkout counters.

“Placement of unhealthy snacks near a register increases the likelihood that customers will purchase these foods and drinks when willpower is weak at the end of a long shopping trip,” said a City Council member. The new rule will affect at least 25 retailers in Berkeley. These include Whole Foods, CVS, Walgreens and Safeway.

Stores can still sell candy and soda, just not at a child’s eye level in the checkout. The council said the shift to selling more healthy products at checkouts will still be profitable for stores because data shows customers are looking for more low sugar and low sodium products anyway. “The idea of healthy checkout is that it offers parents more opportunities to say yes to their kids, and it also helps us to re-envision what treats are,” said a member of Berkeley’s sugar-sweetened beverage commission. Retailers in test cases around the country and in California have seen dramatic increases in sales of healthy foods since they changed their checkouts to include more fresh options in displays.
As we point out on page 374 of Chapter 9, layout of retail stores is a scientific OM issue whose “objective is to maximize profitability per square foot of floor space.” But checkout counter locations, valuable because of their high exposure rate, are traditionally sold to food manufacturers by the inch!
Classroom discussion questions:
1. Is it a good strategy for governments to dictate supermarket product layouts?
2. Why is this an OM issue?

OM in the News: The End of Just-in-Time?

After a brief recession in the early 1990s, the grocery industry came under pressure to improve profit margins. Companies settled on just in time that aimed to produce, ship and stock as few goods as possible to meet demand. By decreasing the capacity of their distribution centers, retailers saved on rent, utilities and labor. Distributors saved on fuel and wages. Manufacturers cut down on unsold inventory. In the past 2 decades, producers and grocery stores such as Kroger have gone from keeping months of inventory on hand to holding only a few weeks’ supply.

Other industries did the same, from auto making to health care. This finely balanced system works well while goods are flowing steadily. But the coronovirus black swan event blew it to pieces. For many items, supplies sold out in days, exposing the downside of the push to hold less stock in warehouses and operate fewer, fuller trucks.

Now abruptly, manufacturers, distributors and retailers have thrown that strategy into reverse, writes The Wall Street Journal (March 24, 2020). They are making as much food as they can, delivering it as fast as possible and adding staff, all to restock denuded shelves.

General Mills is trying to skip steps in a carefully calibrated process. It is delivering truckloads of Cheerios, flour and pasta straight to stores’ warehouses, instead of first sending products to its own warehouses, to eliminate a link in the supply chain. Retailers, meanwhile, are overriding the sophisticated algorithms that say how much of what products they should buy, after seeing how those models failed to account for the demand surge. Instead, retailers are talking directly to manufacturers and making decisions in real time. “JIT purchasing has been thrown out the window,” said one CEO.

Yet manufacturers run the risk of throttling up production too high if the crush in demand for some products proves to be temporary.

Classroom discussion questions;

  1. Relate this article to the discussion of supplier partnerships in Ch. 16 of your Heizer/Render/Munson OM text.
  2. How does this “black swan” event impact the bullwhip effect discussed in Supplement 11?