Long-run production costs for Whole Foods Long-run production costs for Whole Foods The company does not provide exacting information regarding the entire assembly and manufacture process at the facility, however the majority of costs associated with production are variable and therefore are considered long-run costs. Through new agreements with various suppliers, new sustainability efforts currently underway (CSRWire, 2011), and new distribution methodology, Whole Foods is able to adjust labour and capital accordingly to achieve the lowest total costs achievable (Min, 2011). Through new supply chain methodology, specialization and labour consolidation provide Whole Foods the ability to experience economies of scale in most areas of production.
Costs and expertise-based costs continue to decrease because of specialized labour and new raw materials distribution philosophy, thus the variable aspect of inputs continue to reserve more capital at Whole Foods. Thus, costs of production continue to slope downward rather than upward. Further, the company is taking advantage of cloud computing opportunities in areas of warehousing and improvements in shipping and receiving further reduce the long-run costs of operations each and every year (Zalud, 2011). All of these improvements, plus the costs saved through specialization of labour and sustainability in production make the LTRC for Whole Foods considerably less and likely will remain so through 2012.
The company handles cheese products, meat, seafood, and produce as part of its regular production activities (Zalud). With better research and development, consolidation and labour training, Whole Foods is constantly adjusting its inputs to achieve better capital reservation. Along with its existing $342.9 million on its credit line (Whole Foods, 2010), new production enhancements are likely to ensure much lower variable costs of production through 2012.
There is no evidence that Whole Foods will experience higher long-run production costs through 2012 due to its knowledge of how to procure materials at affordable prices and due to more efficient mass production strategies. However, some of the company’s current high-profile corporate social responsibility efforts, such as providing loans to local produce growers (Whole Foods), could potentially increase some long-run production costs since this effort undermines some of the cost savings achieved through leaner and more diverse supply chain methodology. This will, however, remain to be seen over the next 15 months.
All in all, Whole Foods maintains the ability to be a production leader and the development of new retail stores could further improve warehousing costs, distribution costs, and overall production methodology in the next year. References CSRWire. (2011). The leading global course for sustainability, July 19. Min, J. (2011). Production costs – Long run. New England College of Business and Finance. Whole Foods. (2010). [internet] Whole Foods 2010 Annual Report. [accessed October 5, 2011 at http: //www. wholefoodsmarket. com/company/pdfs/ar10.pdf] Zalud, B. (2011).
Don’t unchain that supply chain ‘melody’, Security, 48(9), pp. 52-58.