Kroger and Fred Meyer: Sourcing Products in a Global Marketplace

read case 25 and finish four discussion questions. Write four paragraphs to answer four questions. Do not need to write the questions in the paper, only 4 paragraphs. Find answers in the case 25.

t between them?
4. There are several opportunities for questionable ethical situations to arise in the importing of products. What do you think the weak points might be? Where in the process is there the potential for unethical actions to occur?CASE 26 American Furniture Warehouse Sources GloballyThe year 1975 saw the tail end of a recession that came on the heels of the 1973 Arab oil embargo, the fall of Saigon, and the resignation of Richard Nixon. That same year, Jake Jabs took over the American Furniture Company in Denver, Colorado, renamed it American Furniture Warehouse (AFW), and started turning it into a high-volume discount home furnishings retailer. Jabs responded to concerns that resonated with consumers in a tough economy: tighter pocketbooks, job insecurity, rising energy costs, a growing number of households as baby boomers branched out, and greater receptivity to generic products. Jabs was an experienced furniture retailer and had operated his own furniture manufacturing concern. Unbeknownst to Jabs at the time, global sourcing would become a more prominent way for his company to stock its showrooms.
Fast-forward to the present. Consumers’ tastes change at a faster clip. They have higher standards than ever, and they demand bargains. As an inherently frugal man, Jake Jabs loves to give the public good value while keeping overhead low.
Eighty-five-year-old Jabs is the CEO and he employs no executives. No titles of vice president or executive vice president are anywhere in sight. The company is family-owned and is not beholden to stockholders demanding that high profit margins or quarterly objectives be met. Without pressure from such entities, AFW has continued to grow and thrive with year-over-year sales increasing an average of 10 percent since the mid-1980s. Jabs obsessively trolls for ideas on how to keep prices low, quality high, and merchandise current.

The process begins with the Kroger buyer who decides to buy a specific product. Imagine that the objective is to find a small collection of lamps for the back-to-school season next year. The Kroger buyers for general merchandise now buy for all the banners under which Kroger operates. This enables them to coordinate buys and make decisions that create the greatest amount of synergy. They have shopped the domestic markets; have paid attention to catalog, newspaper, and online advertising; and have been presented with ideas from various lamp importers. They have settled on three styles: two desk lamps and a floor lamp, with price points of $9.99 and $19.99, and they have made commitments for substantial quantities of these lamps to supply the anticipated demand for the stores.
The buyer has been in partnership with the product merchandiser in the Kroger product development group throughout this initial stage of this process. It is at this point that they hand off the sourcing of the lamps to the product merchandiser, who takes the next step of finding a source to manufacture them. Kroger works very closely with Li and Fung, a “global consumer products sourcing company managing the supply chain for highvolume time-sensitive consumer goods.” It also relies on U.S. importers for identifying factories in Asia. The product merchandiser uses these contacts to solicit quotations for the lamps. Each potential supplier is sent specifications for the products: visuals, dimensions, colors, packaging, target delivery dates, approximate quantities, required testing, and any other available details. The suppliers are given approximately two weeks to create and submit samples and fill out the detailed paperwork known as quotation sheets. These documents specify to all parties involved what, when, and how all actions are done.
Once the quotation sheets and samples are received, the product merchandiser and Kroger buyer meet to assess and review the various submissions. The factors that influence their decision include product quality, vendor reliability, and product cost. All three of these must be seriously evaluated; if one of them is lacking, the whole program is at risk. In fact, decisions are often made to commit to a vendor with higher prices if there is a high degree of confidence in that vendor’s quality and reliability.
When the supplier is chosen, the next step is the creation of purchase orders (POs). Factories do not generally start the acquisition of raw materials and other supplies for manufacturing a product until they have a firm financial commitment from the retailer. This is a very complex process that involves a number of behind-the-scenes support personnel.

The Kroger buying team writes purchase orders that are reviewed by the Kroger Logistics group and given to the Bank of America, which processes the payment to the manufacturer.
The creation of the PO sets the actual production and shipping process in motion. During this process, the Kroger Logistics group monitors the purchase order at every step in the supply chain. The Geo. S. Bush Company, a customs broker and provider of international trade services, provides several employees on site to ensure that all U.S. government regulations are complied with. This involves four main agencies: U.S. Customs and Border Protection, the Food and Drug Administration, the Department of Agriculture, and the Consumer Products Safety Commission. Failure to comply with the requirements of these agencies can cause lengthy slowdowns in delivery and possible fines, so Bush ensures that all paperwork is complete five days before the arrival date of the products.
Concurrent with the creation of the purchase orders, the packaging design process begins. These lamps will be packaged in full-color boxes. The vendor will provide the package templates known as die lines for the boxes that will be needed for these lamps. The graphic designs are generally done in-house by Kroger using predesigned brand templates to ensure consistency of graphic elements with other Kroger products and color execution. When color proofs of the designs are created, they are circulated to the buyer as well as the merchandise manager to whom the buyer reports. As soon as the necessary approvals are secured, the package designs are sent electronically to the supplier. Closer to the delivery date, the supplier will be required to provide samples of the packages printed overseas to ensure the design has been executed properly by the printer. Because of the complexity of this process, finalizing packaging can sometimes take as much time as manufacturing the product.
Another step in this process that has become increasingly important is product testing. Products that pose a danger to consumers and are distributed by a retailer can result in physical harm and lawsuits and/or legal penalties that total in the millions of dollars. To avoid any such situation, importers must understand the possible ways in which different materials and manufacturing designs can cause harm, as well as the many laws in all 50 states that regulate the safety of products.
When the chosen supplier has received the purchase order and the payment arranged by the bank, the actual manufacturing of the product can begin. This entails acquiring the necessary raw materials, packaging, and scheduling the production. The factory has committed to the lead time

specified on the purchase order—usually a minimum of 90 days—and it must coordinate with many different suppliers in order to fulfill this commitment. Any number of obstacles can be encountered at this stage of the process, so strong communication among all involved parties is essential to ensure that shipping deadlines are met. One of the services that an agent such as Li and Fung provides is inspection of the factory at different intervals. Domestic importers often offer these inspections as well. The inspection will not only ensure timely delivery and product quality; it will also ensure that compliance standards (safety, child labor, environmental impacts, etc.) are not violated.
The next step is to arrange for transporting the merchandise. Because lamps are a fairly bulky product, it is not difficult to reach quantities that fill entire containers. Fully loaded containers ensure that handling will move seamlessly from the factory door, to the freight forwarders who load vessels in the Asian port, into the port of entry in the United States, on
through customs inspections, and finally to a distribution -
center. Also, the per-unit transportation cost is significantly ^aSe 520 lower when full, rather than partial, containers are used.
When every connection in the supply chain is functioning properly, shipments from the Pacific Rim to the West Coast can reach port in less than three weeks.
A lamp program such as this is very likely planned to be featured in one or more advertised events in both Fred Meyer and the other Kroger banners. Print advertising for the entire Kroger chain requires significant lead times for photography, production, and printing. The printed copies should be complete and awaiting distribution around four weeks in advance of the planned advertising date. Any delay in the supply chain that might cause the product not to be received early enough could result in advertising without having the advertised product—an unfortunate outcome that disappoints customers.
When these lamp orders from Asia arrive on the West Coast, they are separated into Fred Meyer and Kroger orders. The Kroger merchandise is “trans-loaded” and three 40-foot containers are loaded into two 53-foot rail cars and sent east to Kroger distribution centers. This step adds approximately two weeks to the Kroger stores’ lead time but reduces the shipping costs substantially. The Fred Meyer portion of the order is directed from the port to the Fred Meyer cross-docking distribution center in Chehalis, Washington. The bar codes on the lamps enable them to be placed on a conveyor belt, received by laser scanners, and then mechanically routed to the correct loading point at the ends of the

conveyor system. Several merchandise containers can be received and ready to load on trucks within a matter of several hours. From that point, the lamps will be headed for the stores in the Pacific Northwest, Alaska, and California.
This case study describes the best-case scenario for the importing process at Kroger and Fred Meyer. There are many possible complications that might arise at these stages: production, shipping, customs, port-of-entry, distribution center processing, and domestic transportation arrangements. These complications might add from two weeks to two months to the lead time. Only the intense focus by the teams at Kroger, Bank of America, Li and Fung or other importer, Geo. S. Bush Co., the manufacturer, the manufacturer’s suppliers, the freight forwarders, and customs agents will enable this time to be as short and cost-effective as possible.
Sources: D. Gallacher, assistant vice president, Kroger Logistics Imports, and G. Parsons, vice president, product development, Kroger, interviewed August 2, 2012; Geo. S. Bush Co. Inc., www(dot)geosbush(dot)com/ (accessed December 17, 2016); Li and Fung, Ltd., www(dot)lifung(dot)com/enj ; The Kroger Co., Shipping Manual (n.d.),
www(dot)thekrogerco(dot)com/.../general-merchandise-vendor-shipping-manua; The Kroger Co., Quote Sheet, (n.d ), www(dot)thekrogerco(dot)com/vendors-suppliers/import-vendors.
This case was written by Mary Manning, Portland State University.DISCUSSION QUESTIONSF. What factors would you list that need to be evaluated in making a decision to source products overseas? Make a list of pros and cons, and explain what the pressures are that impel manufacturers and retailers to not source products domestically.
2. Based on the information given, how long do you estimate it will take to import these lamps? Create a set of target dates for each step in this process that will enable these products to arrive in time for the
F planned advertising date and selling period.
What areas of expertise do the various members of the product development team have? What are the possible communication issues that might arise