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TRANSCRIPT
Operational Excellence @
Woolworths, Australia Group 9
Himanshu Mishra 19A
Nalin Diwan 26A
Rachit Singla 34A
Saurabh Vijay 43A
Operations Excellence @ Woolworths, Australia – Group 9
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Contents
Click on a title to navigate to a particular section
About ....................................................................................................... 3
Mission and Vision ...................................................................................... 3
History ..................................................................................................... 4
2008 Rebranding ..................................................................................... 4
Key Financial Highlights (Based on Annual Report 2011) ................................. 5
Supply Chain Overview ............................................................................... 6
Strategy ................................................................................................... 6
Project Quantum ..................................................................................... 6
Supply Chain Initiatives (2010/11) ............................................................ 6
Distribution centres .............................................................................. 6
Systems .............................................................................................. 7
Project Refresh ....................................................................................... 7
Scale of Operations .................................................................................... 9
Store Formats ......................................................................................... 9
Stores .................................................................................................. 10
Liquor .................................................................................................. 12
Minchinbury and Hume DC's ................................................................... 12
Goods Management at Brisbane – An Example .......................................... 13
Replenishment ......................................................................................... 14
Key Initiatives....................................................................................... 14
Forecasting........................................................................................... 14
AutostockR ........................................................................................... 15
IT Systems .............................................................................................. 17
RFID .................................................................................................... 17
Wow link .............................................................................................. 18
Potential Sources Of Future Growth ............................................................ 19
Comparison of Major Retailers ................................................................ 19
Opportunities ........................................................................................ 19
Operations Excellence @ Woolworths, Australia – Group 9
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About
Woolworths is the largest supermarket chain in Australia, owned by
Woolworths Limited. Its annual revenues are over 42 billion Australian Dollars.
Woolworths Limited is a major Australian company with extensive retail interest
throughout Australia and New Zealand. It is the:
largest retail company in Australia and New Zealand by market
capitalisation and sales
largest food retailer in Australia and the second largest in New Zealand
largest takeaway liquor retailer in Australia
largest hotel and poker machine operator in Australia
19th largest retailer in the world (may change from time to time)
Since opening its first single basement store in Sydney’s Pitt Street in 1924,
Woolworths has grown into a household name with a presence in almost every
metropolitan and regional centre in Australia and New Zealand. It began its
operating fresh food stores 60 years ago when advances in refrigeration
technology revolutionised transport and storage. In 2011it celebrated its 87th
year in the retailing business.
Woolworths operates five supermarket formats in Australia (Woolworths,
Safeway, Food for Less, Flemings, Thomas Dux), and five in New Zealand
(Woolworths, Supervalue, Fresh Choice, Foodtown, Countdown). The
retailer also operates Petrol, Convenience, Liquor, General Merchandise and
Consumer Electronics stores across the two markets, and a hotel business in
Australia.
Mission and Vision
Woolworths’ mission statement and main strategy is ‘to deliver to customers the
right shopping experience each and every time.’
Woolworths’ vision is to provide quality products and services to its customers all
the time through price strategies, fresh food strategies and human resource
strategies. Woolworth’s main strategies are to increase efficiency and be cost
effective.
Operations Excellence @ Woolworths, Australia – Group 9
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History
Woolworths Limited was founded in 1924, with the first store opening upin
Sydney’s Pitt Street.
2008 Rebranding
On 22 August 2008, Woolworths announced it was launching a new identity for
all its supermarkets and plans to replace the Safeway brand in Victoria, in order
to unite all of its supermarkets under one common brand 'Woolworths'.
The logo, which had been in use for 21 years, was replaced with a new brand
image, designed by Hans Hulsbosch with a new green tinted icon representing
the 'W' in Woolworths with the addition of a stylised leaf to suggest fresh
produce. It is also reminiscent of a 1970s Woolworths logo. However, the
company's slogan, "The Fresh Food People", which is known throughout
Australia, remains as a key part of the new logo. The company introduced these
changes in order to further distance itself from its major rival Coles
Supermarkets, and to make its branding more modern, 'softer' and more
likeable.
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In September 2009, this rebranding scheme was extended to New Zealand
stores where the new Woolworths symbol is to be used alongside the Countdown
brand.
In October 2009, it was reported that Apple Inc. had lodged an objection to
Woolworths' trademark application with the Australian Government's intellectual
property agency IP Australia, claiming that the logo resembles its own.
Key Financial Highlights (Based on Annual Report 2011)
Group turnover up by 9.4% and profit before tax increasing 31.1% from
last year to R 2306 million.
Despite the conditions the results for the year were excellent, with Group
turnover up 9.4% and profit before tax increasing 31.1% from last year to
R2 306 million.
As a result of the improved operating performance, as well as the
improvements in balance sheet efficiency, the Group’s return on equity
increased from 39.4% to 44.1%.
Woolworths Retail achieved an operating margin of 8.7%, up from 7.0%
in 2010 and a head of the 3-yeartarget of 8%.
Woolworths Retail achieved an operating margin of 8.7%, up from 7.0%
in 2010 and ahead of the 3-year target of 8% set in June 2009. The
focus is on productivity to achieve positive operating margin
leverage.
Operations Excellence @ Woolworths, Australia – Group 9
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Supply Chain Overview
Strategy
Project Quantum
Woolworths began Project Quantum in 2010. Following in the vein of previous
initiatives, such as Project Refresh, its overall objective is to reduce costs
and improve efficiencies across the business. It is headed up by Ramnik
Narsey, who formerly ran Woolworths' petrol business.
There are a number of supply chain-specific aspects to the project:
End to end supply chain - moving to the next level
Lowering costs in procurement (not for resale)
Enhancing capability in global direct sourcing and lowering costs for the
consumer
Improving efficiency of support structures
Supply Chain Initiatives (2010/11)
Distribution centres
Successful commissioning of liquor distribution centres in Brisbane,
Melbourne and Sydney provides the capacity to respond to changing
market conditions
The national distribution centre in Mulgrave, Melbourne is being
reengineered to improve pick rate efficiency and reduce costs. This is
expected to complete by the end of FY11
Construction of a new Big W distribution centre has begun in Hoxton Park,
Sydney, with expected completion in FY12.
The Tasmanian regional distribution centre is due to complete construction
in FY12
Refurbishment work on automated sites at Hume, Victoria and
Minchinbury, New South Wales, is due to complete in the first half of
FY11, significantly extending the life of these facilities
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Further development of the Bunbury meat processing and distribution
operation in Western Australia commences in FY11, to improve efficiency
of processing and distribution to supermarkets in that region
Systems
The Next Generation Replenishment solution will continue to reduce
inventory days, as well as save costs in stores, distribution centres and
transport
In liquor, stock levels in-store have reduced due to the application of the
AutoStockR system. AutoStockR has also been implemented across Big
W and New Zealand Supermarkets.
Direct buying volume has grown by over 70% during 2010 and
Woolworths continues to expand its geographic reach for sourcing
products
Woolworths uses StockSmart (distribution centre forecast based
replenishment) as well as warehouse and transport management
systems
Ethical sourcing policies are in place and a sustainable sourcing policy
has been put in place for obtaining palm oil for private label products
Project Refresh
During 2008 Woolworths completed the majority of its end-to-end supply chain
improvement programme in Australia. 'Project Refresh' played a key part in
Woolworth's strong financial results over recent years and, between 1999 and
2007, delivered cumulative savings of around AU$ 7.3 billion (4.71% of sales).
The improvements implemented during the project have led to increased
productivity, which has enabled higher levels of "in stock performance" and
resulted in greater competitive advantage.
The first phase of Project Refresh saw Woolworths reorganise its business from a
silo-built state-based business to a national business. The retailer combined the
state-based buying teams into a single central operation enabling goods to be
purchased nationally. The transformation of its supply chain was driven by the
implementation of a range of systems including: a Warehouse Management
System; a Transport Management System; StockSmart, a forecast based
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replenishment system installed in distribution centres; and AutostockR, a
store forecast based replenishment system installed in stores.
The integration of the store-forecast replenishment system with the distribution
centre forecast-based replenishment system has given the business the ability to
predict, order and control stock by allowing the retailer to focus more on
managing information and less on managing stock which is more cost-efficient
and operationally effective.
For example, the system allows the retailer to predict how many tins of Golden
Circle pineapple slices would be needed by each individual supermarket around
the country in two weeks' time.
These systems have enabled a range of additional improvements including:
Optimization of movement of inventory through the physical supply
network to reduce lead times, costs and inventory
Rapid re-optimization of replenishment plans for ambient, fresh, chilled
and frozen items
Supplier to store transportation optimization, planning and management
Better supply chain event monitoring and management
Improved management of orders and master data
Greater accuracy of reporting and analytics
The roll out of the Transport Management System (TMS) has enabled
Woolworth's Primary Freight business to better manage inbound volumes into
DC's, reducing the cost of its inbound freight and (according to the retailer)
outperforming industry benchmarks.
Project Refresh has had a considerable impact on Woolworths' stock holding,
days on hand fell by 23% between 2002 - 2006. However, the daily intake
capacities of distribution centres has increased significantly, for example the
conversion to a national distribution centre in Sydney has enabled an increase of
600 pallets per day to be accepted from 1,000 to 1,600.
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Scale of Operations
Store Formats
Woolworths operates five supermarket formats in Australia (Woolworths,
Safeway, Food for Less, Flemings, Thomas Dux), and five in New Zealand
(Woolworths, Supervalue, Fresh Choice, Foodtown, Countdown).
Control Room
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Stores
Australia
Supermarket
(Woolworths, Safeway, Food for Less, Flemings, Thomas Dux)
805
Petrol/Forecourt (Wow, Caltex, Woolworths) 542
Liquor
(BWS, Dan Murphy's, First Estate, Mac's Liquor, The Cheaper
Liquor,ALH/MGW)
719
General Merchandise (Big W) 156
Consumer Electronics (Dick Smith Electronics, Dick Smith
Powerhouse, Tandy)
436
Hotel 280
Total Stores Australia 2,938
New Zealand
Supermarket
(Woolworths, Supervalue, Fresh Choice, Foodtown,
Countdown)
202
Petrol/Convenience (Quickstop, Micro) 22
Total Stores New Zealand 224
Total 3,162
Woolworth's new supply chain was designed following detailed modelling which
demonstrated that its optimum supply network should be made up of National
Distribution Centres (NDC's) for slow moving lines and Regional
Distribution Centres (RDC's) for fast moving goods.
The Woolworths network currently comprises two National Distribution Centres
(Mulgrave in Melbourne and Yennora in Sydney) and nine Regional Distribution
Centres. The network also includes two new Liquor distribution centres, a range
of satellite facilities, dedicated sites and 3PL operated DC's.
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The following diagrams show the NDCs' and RDCs' that Woolworths operates
within Australia and New Zealand:
Source:
Image 1 - Woolworths (2009) Melbourne LDC Vendor Pack,
Image 2 - Wow link, www.woolworths.com.au
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Liquor
In 2008 Woolworths began construction on two new dedicated Liquor
Distribution Centres, one in Sydney at Erskine Park and another in Melbourne at
Laverton. The sites will service Woolworths' liquor stores, BWS and Dan
Murphy's with liquor and slower moving lines.
Minchinbury and Hume DC's
Woolworths distributes much of its fast moving dry and non-food categories
from two regional distribution centres, Minchinbury, which serves the Sydney
area, and Hume/Broadmeadows, serving the Melbourne area. The categories
require similar handling allowing the optimum use of automated handling
equipment. Both sites were constructed in the late 1990's by Swisslog and
include the following features:
Goods receiving area for the identification and checking of goods
Bulk storage high-bay warehouse
Crossdock (transhipment) and flowthru area
Automated replenishment to picking area
Pick-to-belt module for pick-to-light picking
Automated order picking module with robotic picking
High-speed sortation and despatch facilities
Warehouse management system with material flow control and connection
to the Woolworths ERP system.
According to Swisslog the benefits of the sites include: lower stock levels; a
good balance between manual and automated processes; the use of up-
to-date material handling technology; and the flexibility to operate in an
ever-changing environment.
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Goods Management at Brisbane – An Example
The goods receipt and management process at the Brisbane site is heavily
automated. In a traditional DC a full pallet is unloaded at the dock, picked up
and put away by a forklift, whereas at the Brisbane site the full pallet is lifted
and positioned by large automated cranes, it then passes through various
sensors as it moves from the dock along an infeed conveyor to a stock station.
At the stock station the pallet is checked for weight, oversize, integrity, fork
tunnels and barcodes before proceeding to a lift and being transported to the Hi-
Bay, it is at the station that the pallet will be either accepted or rejected.
A pallet will be rejected if it does not conform to the set criteria, for example, if
the pallet is broken, has extruding nails, if the shrink wrap is not applied
correctly or if the label is inaccurate, the pallet will be rejected. Only nine pallets
can be rejected at any one time before the automated lift system stops and staff
must manually fix the problem. As the system is fully-computerised the operator
can easily identify the cause of the rejection. Once the pallets are stores, the
LCS system used at the site knows the location of every pallet, base on the code
dates. These are scanned to make use the pallet matches the given information.
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Replenishment
Key Initiatives
Stock not on shelf, Phantom stock and supply constitute 64% of all on-shelf out
of stocks. Woolworths has identified a number of development streams to
improve on-shelf availability.
The major causes of stock not on shelf are:
Distribution centre pick accuracy - team incentives are in place to
improve pick accuracy
Theft - tagging initiatives are in place to reduce stock loss
Poor in-store management of stock on hand - improved demand
planning
Woolworths is working with the suppliers to develop communication and improve
in-bound service levels in a number of ways:
Wow link - data on key measures such as service levels, daily and
weekly demand forecasts are communicated via Woolworths' supplier
internet portal
Vendor capability team - assist suppliers with transport and logistics
arrangements
Vendor relationship programme (VRP) - suppliers work within
distribution replenishment teams, cooperating with the trading teams to
produce demand forecasts; these forecasts are shared with their own
organisations. Currently over 50 suppliers are engaged in VRP and
represents 50% of the total distribution centre volume. Promotional
volumes can cause capacity issues at depots, buyers are challenged to
review the cube volume of bulky item promotions
Forecasting
A number of initiatives are in place to improve supply chain forecast accuracy
and the impact on the total supply chain:
Weather - Woolworths stores span 120 temperature zones. 7 day
forecasts are utilised to assess weather impacts
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Promotions - currently one of the areas where the most improvement
can be achieved,40% of total demand is promotion driven. Each week
3,000 products are on promotion and promotional volumes can cause
depot capacity issues. Buyers are tasked with reviewing the cube volume
of bulky item promotions to assess the supply chain impact
Demand smoothing - the in-store replenishment system smoothes
demand to best utilise back room space and manage peak labour cost
periods. This is particularly useful for managing event and weekend
volumes
|
Automation
AutostockR
The objective of AutostockR is to maximise availability and deliver greater
visibility of stock requirements and days of supply. AutostockR was initially
installed to cover grocery lines, but was latterly rolled-out to cover liquor,
general merchandise, fresh food and direct to store supplied lines.
AutostockR generates an order using the following components:
1. Forecast sales - based on history and including seasonality
2. Target stock - Minimum presentation level (MPL) is the amount of
planned to have prior to the next fill
3. Existing stock - Stock on hand (SOH) + stock in transit (SIT) + stock
on order (SOO)
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The store is responsible for SOH and MPL of each item. Stores can get baseline
forecasts changed only by contacting central AutostockR teams who analyse the
availability problem and make necessary changes to the forecast.
AutostockR - forecasts store item sales based on historical sales, trends and
planned inventory levels
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IT Systems
Initiative Description Status
StockSMART The computerised forecasting and
replenishment system ensures stock levels are maintained at distribution centres. It has also been integrated into
the ordering systems to enable "orders by exception".
All DC’s
AutoStockR Forecasts store item sales based on historical sales trends and current and
planned inventory levels
All stores
eDSD In-house system handles 50,000 orders
for direct lines each week.
All stores; all
DSD vendors
B2B e-commerce
The in-house system enables 100 per cent electronic ordering on Woolworths' side.
Most suppliers
WOWlink Vendor extranet - The in-house system was designed and implemented over 12
months.
All vendors
RFID
Woolworths completed two trials of Radio Frequency Identification (RFID) in
2008. The retailer tested both passive dual-frequency tags and UHF EPC Gen 2
tags at a number of supplier distribution centres and supermarkets to test the
viability of the technology. The first trial used the tags to track and trace fresh
produce along the supply chain but was halted as it became clear that the cost
of the technology remained prohibitive. However the second trial, which involved
monitoring temperature levels across certain segments of the distribution
network, was extended.
The benefits of RFID can include:
Improvements in efficiency for tracking fresh produce (this is currently a
paper-based process)
Reduced errors in accounts, improved documentation and reduced paper
use
Better visibility and control over stock, reducing wastage
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RFID in use
Wow link
Woolworths began the launch of its wow link data portal in late 2008 and the
roll-out has continued into 2009. Wow link is a replacement for the previous
vendor website and has been designed to be a one-stop shop for all the
information suppliers need to work with Woolworths.
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Potential Sources Of Future Growth
Woolworths constantly grows volume and store numbers served from the DCs
and changes some of the Supply Chain strategy. Swisslog incorporates such
growth and change into the sites.
Comparison of Major Retailers
Opportunities
Opportunity Global Best
Practice
Results to date
Products
(food)
Improved fresh food Carrefour “The Real Fresh Food People”
advertising campaign Liquor Numerous Massive acquisition binge
making Woolworths #1 liquor outlet retailer.
Petrol Tesco Opened stand alone outlets;
acquired Liberty; created JV with Caltex
Now a major petrol retailer across Australia
Coles Myer response has neutralised first mover advantage
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Tier II private label Tesco Announced plans to launch
200 sku premium private label range
Products (non-food)
Entertainment Household Clothing
Tesco Some one-off specials (similar to Aldi) Challenge of cannibalising
existing Big W stores Limited space availability in
existing store portfolio Services Pharmacy Wal-Mart Resistance of politically strong
independent pharmacists
Still prevented from offering in-store pharmacy despite
intense lobbying of government
Banking Sainsbury’s Launched Woolworths Ezy
Banking In store ATMs and kiosks in
stores Insurance Costco -
Various software changes have been implemented to permit cross-docking and
flow through from other DCs, optimising transportation and purchasing
strategies. Evolution from regional DC to national DC is also possible. Additional
chutes on the sorter and extending the highbay are possible future projects.