Case Study

Case
Study

Wholefood Distribution Company

Situation

This company distributes wholefoods to small healthfood stores and large supermarket chains. There is strong demand for the company’s products – one product in particular has been recommended by a popular TV chef – and the company has grown to about 50 staff.

Current Initiatives and Concerns

Architecture

The company offices are currently being rebuilt to remove the separation between the levels of the company. Instead of the management sitting upstairs and everyone else downstairs, a mezzanine floor is being constructed, with informal meeting and eating areas. Management hopes that this will improve communications across the firm, and restore the sense of “family” that the company had when it was smaller, in smaller premises.

Balance between small shops and large supermarket chains

The large supermarkets control a very high share of the total UK market for food. It is essential to distribute via supermarkets if you want your products to reach the majority of the population.

At the same time, the company wants to continue to supply the small shops. However, since the typical order quantities for the small shops are much lower, the costs of delivery and administration are proportionately much greater. Furthermore, some very small shops insist that they cannot afford to buy a whole pack of a single product, and want to buy half a pack. When such demands are met, this incurs further cost and effort.

Thus smaller shops are seen as less efficient for the company – each one bringing less revenue for the company in return for greater cost and effort.

It might be possible to deal with this situation by differential pricing – supplying to supermarkets at a much lower price, in recognition of higher volumes and greater efficiency – but this tactic is understandably unpopular with the small shops.

In any case, excessive dependency on supermarkets carries a commercial risk. There may be arbitrary variation in volumes and strong pressure on prices that can destabilise the other part of the business. Sometimes the popularity of a brand can encourage a supermarket to develop its "own brand", leading to poaching of markets.

Alignment between company values and individual values

The managing director expressed some envy of the delivery folk. They are at the front line of the company, interacting with the retailers and customers. He likes to do deliveries himself sometimes, as this gives him a chance to escape from the paperwork and talk to people outside the company.

It makes him sad that the delivery folk themselves don’t do the job the way he does, with the same attention to the customer. They just want to dump the goods as quickly as possible and push on with the next delivery. When there is a problem, they don’t stay to sort it out, and he has to handle the complaints.

Communication

I asked him how he might communicate his values to his staff. Would they just listen politely and continue doing the job as before? On the contrary, he said with a combination of pride and regret – they would argue fervently with him and reject his viewpoint.

Loss of personal relationship

Another thing that the managing director misses is the intimacy of a smaller company. At one time, he knew everyone in the company, and understood their strengths and weaknesses, likes and dislikes, ambitions and priorities. Managers and staff mixed socially as well as at work.

Now he has to manage at a higher level of abstraction, making decisions about types rather than individuals.

Other possible issues

Positioning – small supplier of unique high value products or sourcing service for important market niche?
Warehousing and supply chain inbound. Supply chain assurance, ability to recall product if necessary.
Sales team and invoicing. Synchronization of price changes.
Market development. Trial and introduction of new products.

Questions

Why do you think the company wants to supply to small shops as well as to large supermarkets? How might this be threatened by differential pricing?

What do you think would motivate the delivery staff to spend more time on “customer care”?

What measures of performance might be appropriate for this company?

What are the problems that companies face when they grow beyond a certain size? How can these problems be addressed?

What do you think of the leadership style indicated in this case?

Are disagreement and conflict (within the management team, between levels) healthy or unhealthy?

Source

Prepared by Richard Veryard, based on a conversation with the managing director. October 2001.

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