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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


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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.


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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.


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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

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

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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.