Woolworths Limited's centralized distribution model and supply chain management

¶ … purchasing and supply management issue of Woolworths Limited. Mainly, the paper will focus on how Woolworths performs their purchasing and supply system and the consequent issues in both its positive and negative aspect. In addition, the essay will also examine the relationships between cost, timeliness of information, goods and services that consequents as a result of their purchasing and supply activities.

Woolworth Ltd. follows a centralized distribution model of supply chain management which means that it has consolidated all its IT centers, emergency disaster centers and resources as well as management and operation hubs into one centralized system (Network World).

The advantages of Woolworth's adopting this model include the following:

It simplifies distribution to suppliers giving them one single pick-up.

It simplifies deliveries to stores (with again this simple one pick up of package / order)

It reduces cost of operation

It improves monitoring of transportation of supplies ascertaining, for instance, that produce arrives as fresh as it left and that quality of items remains intact.

It allows for variability of products in a wide range of stores across different locations (for example, full-line stores, food stand-alones and Engen Food Stop convenience stores).

Woolworth's level of excellence in supply chain management was attested to in 2008 when they received a Platinum Award for distinction in Logistics (LPC. Int. Ltd.) in recognition of the fact that their "daily predictable deliveries are made within 15-minute windows every day and achieve high results" (http://www.lpcinternational.co.uk/pdf/news/woolworths-platinum-award2.pdf). This was despite the fact that 2004 (for which they were given the award) was a particularly grueling year for them due to unusually aggressive store rollouts and associated volume growth (Woolworths. Creating sustainable excellence in centralized distribution). As the following essay shows, Woolworth has achieved a glorious reputation in their supply chain management system that has undoubtedly resulted in much of their spectacle success. Some disadvantages too may have occurred as result, but these are few and far between as compared to their documented benefits.

3.0 Time & resource management for Woolworths

In this part, we will examine how Woolworth's supply chain performance effects time, resource, information, goods and services, as well as the relationship between those elements. In the first case, we will see how and whether the activity will reduce or increase the time for purchase inventory and delivery to the customer. Secondly, we will see how Woolworth deals with their inventory and resource, subsequent effect on the quality of the products. Thirdly, we will determine how they deliver their product to the customers effectively, which Dina Wahyuni (2010) claimed that they do " mainly [by] running its own logistics services to handle both primary transport services to deliver stocks from vendor to the nearest RDC/NDC and secondary transport services to deliver stocks from the RDC to stores"(p.g.17). Finally, we will consider the relationship between time, cost, quality, and quantity in the context of supply chains as systems. All of these points will be addressed in no particular order.

Traditionally, manufactures would work form one central spot and have their stock distributed through the chain: at retailers, suppliers, or in the warehouse. They would also make numerous trips travelling from point to point in order to transport their loads from one to the other. Oftentimes, their routes were significant and their loads less than full. Manufacturers, in this way, accumulated significant cost. Firstly, they had the capital cost of all the locations they rented for storing their merchandise; secondly they had travel costs, as well as costs in time, and costs of products deteriorating and so forth. Delays in delivery would result in stock out where stocks would run out and the business risked losing customers.

Centralized supply chain management eliminates all these problems by having their delivery fleet, suppliers, IT information system, and all parts of their work centralized in one location. The supplier now delivers goods to one central warehouse, rather than to individual stores, so consolidation of all suppliers is achieved and the expense and hassle of trips is reduced. Delivery costs also are reduced, and chance for quantity of product is elevated. Regular, efficient, and reliable distribution results ending in more content customers and in higher business levels. (Musgrave group). (Aside from which centralized distribution also aids the environment making Woolworth a more sustainable business).

Woolworth's supply chain management is invested in cutting down on time and in delivering its products in a timely and efficient manner. To this end, they focus on end-to-end optimization where every part of the supply chain is meticulously accorded attention. When each part is monitored and strengthened, Woolworth can expect their products to likely arrive at their Trade vendors intact with quality and condition maintained and hence less money spent on, for instance, replacing damaged goods.

Woolworth works via agents whom they call Essential Enablers who conduct the supply chain operations within Woolworth. Their duty is to:

Receive and acknowledge Purchase Order information in timely manner

Supply the Purchase orders on time within the scheduled window of delivery

Supply the order packages to the correct packaging and barcode specifications (Woolworth; Vendors)

4.0 Issues on benefits and drawbacks side

In the fourth part, the paper will indicate the positive and negative effects of implementation of their supply chain system. For instance, Woolworth's warehouse operations make a massive contribution to the company's success in the contest for the Australian consumer's dollar (MHD supply chain solutions, 2011). Furthermore, this section will also analyze the critical strategy of their purchasing and supply management and indicate how it may influence the supply chain in general.

Woolworth's focus on end-to-end optimization has turned out largely, if not totally advantageous. For instance, their 2006 annual report noted that:" Good productivity gains in labor and transport enabled Woolworths to reduce the distribution cost per unit in food despite the 33% increase in the cost of fuel in the past year."(http://www.woolworthsholdings.co.za/investor/annual_reports/ar2006/ww/operations.asp)

Woolworth, as seen, pays close attention to every step of its process and the result, inevitably is profit. Take their GS1net service for instance where Woolworth uses standard GDSN electronic messages in order to transmit effective information flow. The result has been, according to Stephan Bate, general manager long-life buying at Woolworths: "With Woolworths now fully compliant with GS1net and able to synchronize data with our suppliers we see this as a valuable opportunity for our trade partners to reduce their cost of doing business." (ibid.)

Research also showed that despite the recession, Woolworth made profit. As see above, this is in no small part due to the efficiency of their supply chain management system. In fact, despite Woolworth's distribution team holding a 55 day strike in 2006, service levels were maintained regularly throughout and customers received normal service.

Woolworth, as noted, consistently surveys and attempts to improve their supply system. Their most recent attempt was a few months ago, and their outcome was the following: "Woolworths has reported good progress against its strategic objectives, with continuing operations delivering net profits after tax up 3.2%, to AUS $1,184.3m, for the first half of 2012" (Supply chain analysis)

Woolworth invests a lot in its Project Refresh and in turn it sees clear profit. Under former CEO Roger Corbett, for instance, Woolworths invested an initial $1 billion in its supply chain transformation program ultimately realizing savings of more than $7 billion (Australian IT (March 26, 2008))

In fact, if Woolworth continues in this way, it may well accomplish its intention of becoming Australia's leading multi-channel retailer as it told an investor briefing in Sydney in 2011 that it would one day become (Supply Chain Analysis (04-Nov-2011).

Assessing the numerous advantages of the supply chain system, only of which a small percentage has been recorded here, and the infinite and ongoing advantages that it accords Woolworth (again, only of which a minute amount has been recorded) it would be hard to find fault with the system.

Perhaps one of the few faults that can be found is with the larger system itself, namely centralization, that Woolworth abides to. Since suppliers aggregate their product in one place, there may be an exponential effect form a harmful product that is multiplied many times over. A larger number of smaller producers (as in Distributism) would have not incurred this same problem. (The Distributist Review, August 20, 2010)

5.0 Conclusion

In the last part, we will summarize Woolworth's main purchasing and supply strategy and activities. Secondly, we will show the relationship between the elements of their supply chain. Finally, we will indicate benefits and losses that Woolworth may have gained from their performance.

Woolworth Ltd. follows a centralized distribution model of supply chain management which means that it has eliminated all traditional problems of sellout, deterioration of products, expense, and loss of time (as well as loss of customers) by having their delivery fleet, suppliers, IT information system, and all parts of their work centralized in one location. The supplier now delivers goods to one central warehouse, rather than to individual stores, so consolidation of all suppliers is achieved and the expense and hassle of trips is reduced. Delivery costs also are reduced, and chance for quantity of product is elevated. Regular, efficient, and reliable distribution results ending in more content customers and in higher business levels. (Musgrave group).

On the other hand, perhaps one of the few faults that can be found is with the larger system itself, namely centralization, that Woolworth abides with. Since suppliers aggregate their product in one place, there may be an exponential effect form a harmful product that is multiplied many times over. A larger number of smaller producers (as in Distributism) would have not incurred this same problem.

On the whole, however, Woolworth has only profited from their supply chain system as attested to by the fact that in 2008 Woolworths invested an initial $1 billion in its supply chain transformation program ultimately realizing savings of more than $7 billion. And its profits continue.

Reference list:

Australian Foood & Retail News Woolworths drives $2.5bn out of the supply chain http://www.muzink.com/afrn?articleid=232

Australian IT (March 26, 2008). Woolies boosts supply chain technology

http://www.theaustralian.com.au/australian-it-old/woolies-boosts-supply-chain-technology/story-e6frganf-

CIO Supply chain management in Australia

http://www.cio.com.au/article/401242/supply_chain_management_australia_-_part_1/

Dina, W. (2010). The Importance of Supply Chain Management in Competitive Business: A Case Study on Woolworths. Manajemen Usahawan Indonesia, No. 1, pp. 32-39, 2010.

The Distributist Review, (August 20, 2010) A problem with over-centralizing production.