Report on Supply Chain Management Strategies at Kmart Australia

This report provides a detailed analysis of Kmart Australia's supply chain management strategies. It begins with a company description, highlighting Kmart's position as a subsidiary of Wesfarmers Limited and its extensive retail network across Australia and New Zealand. The report then delves into various aspects of Kmart's supply chain, including sourcing of materials and services through direct sourcing to reduce costs, production processes focusing on efficient product flow, demand and capacity management utilizing forecasting and planning systems, inventory management incorporating IT systems and the Dematic Cross Belt Sorting System, and distribution and transportation logistics. The analysis also highlights Kmart's implementation of lean manufacturing techniques to decrease operational costs and enhance sales. The report concludes with recommendations for further improvements in Kmart's supply chain management practices.

Running Head: SUPPLY CHAIN MANAGEMENT 1
Supply Chain Management

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Table of Contents
Introduction.................................................................................................................................................3
Company Description..................................................................................................................................3
Supply Chain Management of Kmart Australia............................................................................................4
Sourcing of Materials and Services..............................................................................................................4
Producing Goods and Services.....................................................................................................................5
Demand and Capacity Management...........................................................................................................5
Inventory Management...............................................................................................................................6
Investment in Information Technology System.......................................................................................7
Dematic Cross Belt Sorting System..........................................................................................................7
Distribution and Transportation..................................................................................................................8
Conclusion and Recommendations.............................................................................................................9
References.................................................................................................................................................11

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Introduction
Supply Chain Management is the network of different activities where the raw material is bought
then converted into usable products and services and then ultimately provided to final customers
via distribution systems. It includes the activities which cover everything from sourcing, product
or service development, production, logistics and information systems required to manage all of
these activities. Effective supply chain management can provide its customers excellent quality
products with affordable prices (Agrawal & Smith, 2009). It includes managing and
incorporating all flows among organizations. This process aims to decrease the inventory and
with the assumptions that products are available when required. The major objective of this
report is to discuss about supply chain management activities of K-mart Australia Limited.
Kmart Australia Limited is operating its business as a subsidiary of Wesfarmers Limited. This
report includes the discussion about the different supply chain aspects in context of Kmart
Australia. It describes about different activities of chosen company such as sourcing materials,
production process, demand and supply management, inventory management and distribution
management.
Company Description
Kmart Australia Limited is an Australian retail store chain that is operated and owned by a
leading organization in Australia i.e. Wesfarmers Limited. At present, this organization is
operating 228 stores all over Australia and New Zealand. Its headquarters is located in Mulgrave,
Melbourne. This retail chain was established in the year 1969 by developing a joint venture in
between Coy Limited, S.S. Kresge Company and G.J. Coles. Before 2007, it has faced huge
losses. In this year, Wesfarmers had taken the control of Coles that assisted the organization to
enhance its EBIT. Now, Kmart is able to operate its stores in every location of Australia. This
organization is using an effective process to manage its supply chain operations. It led the
company to receive “The Storage & Handling of Materials” Award in Australian Supply Chain
and Logistics Awards in the December month of year 2013. This award was due to appreciation
of its wide supply chain network and renovation plan that has helped this retailer to increase its
productivity and sales in past few years (Kmart Australia Limited, 2018). The company has

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adopted various effective strategies and techniques for facilitating its supply chain process so
that it can deliver desired products and services to its final customers.
Supply Chain Management of Kmart Australia
Supply chain management is supervision of a planning of managed business operations
concerned in the significant requirement of manufactured products required by the end users. It
consists of movement of raw material, work-in-process and final products from production unit
to the customers (Ayers & Odegaard, 2007). The significant growth of Kmart Australia is
attributed to its continuous emphasis on the needs and demands of customers and decreasing the
costs via its efficient supply chain management. Supply chain management activities of Kmart
are discussed below:
Sourcing of Materials and Services
Sourcing is one of the most significant practices for any retail organization. This is also known
as procurement strategy that aims to acquire materials from different nations with comparatively
lower production costs and labor (Christopher, 2016). Kmart is using an inclined supply chain
process together via direct sourcing that has led the organization to deliver products by saving
the costs. Direct sourcing is a technique of sourcing the materials that allows the retailers to
respond quickly and make the timely purchase decisions on the basis of demands and needs of
customers. Under this process, Kmart is totally focused on the need to decrease purchase costs
and sell the products to customers on best prices. It directly procures the materials from
manufacturers, by passing all the mediators (Kmart Australia, 2018).
Under its procurement process, this firm finalizes a deal only when the management team of
company is confident the products being purchased are not available to other retailers at lower
prices. It spends a considerable amount of time on meeting to suppliers and vendors and knowing
about their cost structure. This company has purchased an enterprise resource planning system
that is specifically created for its sourcing unit (Rijpkema, Rossi & Vorst, 2014). For this, its
objective is to associate the purchasers, merchants and other divisions from starting to end in the
structure, through which data is transferred among clients, time zones and offices. This entire
procedure is computer-operated and this organization has excluded time that exhausted on e-
mails and calls. This system is connected to most of its major suppliers. It allowed the vendors to

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download purchase order among with the outlet-to-outlet sales data related to the sold products.
By getting this data, suppliers ship the needed products to distribution centers of Kmart
Australia. The company has implemented Direct Sourcing System (DSS) practicing Core
Solutions’ CBX supply chain software. This software and system is assisting Kmart Australia in
identifying their business operations, reducing prices and tripling the sourcing quantity without
increase in the headcount. This sourcing system plays a vital role in helping this firm to
implement a policy that assists it to become one of the leading retailers in Australia (Johnson,
2014).
Producing Goods and Services
In the supply chain management process, production of goods and services is one of the most
important processes. However, Kmart is operating its business operations as a retailer that
purchases its products directly from other companies and suppliers. Under this, the company is
very much focused on managing its product flow and flow of goods from producer to final
customers. The company has made this process possible via establishing different warehouses
and distribution centers among distributors, dealers and suppliers. Millions of goods flow via
premises of Kmart each year (Hübner, Holzapfel & Kuhn, 2015). By using effective strategies
and techniques, it is emphasizing on cutting the operational costs and offering the products on
best prices to its final customers. Thus, the company directly acquires retail products directly
from the producer companies with the assistance of different intermediaries.

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(Source: Kmart Australia, 2018)
Under this practice of supply chain management, Kmart has implemented lean manufacturing
technique that enabled it to decrease its operational costs by over 3$ million (Chandaria, 2011).
The lean project team and its distribution team are engaged in continuous improvement program
that assisted to save huge amount to this Australia retailer. Moreover, this lean methodology
helped Kmart to enhance its sales by utilizing its supply chain process to secure increased profits.
For this, one of the great examples is its pick and pack system where this company shortened the
cardboard box sizes and reduced the costs of distribution. Through this, it is able to reduce
supply chain expenditures by more than $60 million. Additionally, Kmart has recently revised its
approach to have the lowest costs. The retail chain management expands all via its business and
informs its consumers on the basis of “low prices every day”. The company has launched this not
only to develop recent requirements but to improve its sourcing system. It helps in maintaining
the prices of products and services (Yaprak & Cavusgil, 2015).
Demand and Capacity Management
Demand management is the process that is used to estimate, plan and manage the supply and
demand of products and services. In the business operations of retail player such as Kmart,
demand management is mechanism of managing the demand that is created for products and
services at store by the customers desired to buy the goods as per their preferences and
expectations (Monczka, Handfield, Giunipero & Patterson, 2015). Planning and offering goods
to customers which they need at their shopping time is known as capacity management. At
Kmart, many customers come to the retail stores on regular basis, buy the products and avail its
services as per their ease. Kmart is able to deal with the demands of customer and provide the
products as per their capacity. Supply chain managers at Kmart are emphasized on planning and
forecasting of demand. In order to manage the demand effectively, this company focuses on
market trends, past data, upcoming sales and industry trends to forecast the levels of stock they
require. After that, they estimate their predictions to ensure that distributors have the appropriate
amount of stock in hand so that they can eliminate the additional costs of inventory (Flynn, Huo
& Zhao, 2010).

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Moreover, Kmart believes that knowing about the product demand is not enough to manage the
fluctuations in demand. Also, it includes the capacity of company to meet this demand
effectively. The company is focused on understanding its capacity constraints in context of
equipment, labor, facilities and time. Under this activity of supply chain management, Kmart is
facing the challenge of reducing the waiting time of customers at billing counter. The lack of
staffing and equipment within peak season has made a gap between the demand of customers at
Kmart’s stores and capacity to fulfill that demand. To achieve effective operation management
system, Kmart is using modern scheduling and advanced planning system. With the support of
this system, this organization is utilizing linear techniques to develop the schedules for new
orders (Hines, 2014). This system assists the organization to organize the future demands
effectively for example what products to order and in what amount to order from different
suppliers. In this way, demand planning at Kmart is practiced to make an accurate forecast that is
a major step towards effective management of inventory. These forecasts are compared to the
levels of inventory available in warehouses which ensure that whether they have sufficient stock.
Inventory Management
Inventory management is the monitoring of stock and inventory items. It is the most significant
component of supply chain management process of company. This process of supply chain
management monitors the product flow from producers to warehouses and from these premises
to point of sale. For any retailer, inventory management plays a vital role in maintaining an
anticipated inventory level of particular items (Wild, 2017). In order to manage its inventory
levels, Kmart is using different techniques and processes which assist it in effective management
of stock levels. These different systems and techniques are stated below:
Investment in Information Technology System
Nowadays, it is very common for the companies to make investment in information technology
system. Modern organizations are engaged in investing funds and upgrading the technologies
which are used to manage and organize the inventory and stock levels. Kmart is also among
those firms which have invested in technologies to manage inventory and its costs. Recently, it
has spent $460 million to advance its IT system (Ross, 2016). By using this money, it has
installed state-of-the-art scanners in its 2165 stores which assisted to speed up the check-out
process and fasten the cash registers in its 300 highest volume stores of Kmart. This technique of

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inventory management helps in planning, replenishment and forecasting system, new business to
business collaboration and developing a new system for customers (Silwa, 2018). This system
allows it to track and organize stock to assist Kmart and its vendors get closer for real time
management of inventory. Additionally, it is modifying its Supply Chain Execution System that
helps it in managing its warehouses. Thus, the company heavily invested in communication and
IT system so that it can effectively track the merchandize inventory and sales in the stores across
Australia and New Zealand. It is very essential for Kmart to establish an effective
communication system among its departments and suppliers (Feng, Li, McVay & Skaife, 2014).
Dematic Cross Belt Sorting System
Cross Belt Sorting System is another technique that is adopted by Kmart Australia to manage its
inventory levels. This company is implementing Dematic cross belt sorting system to deal with
the local and imported products and pick pack product orders and enhancing the correctness and
alternative costs. Under this system, two different types of product IDs are utilized. Moreover, it
uses bar code reader label to recognize number. Then the Stickers are implemented to the packets
by the traders continuing to them being shipped to Kmart. The products that are not recognized
by label are implemented simple bar-coded label for recognizing which outlet has packed that
packet. While the label is glanced over, System Director Software of Demantic recognizes which
outlet and vendor has packed the products that is to be predestined for. Ultimately, this report is
regenerated for the consolidation and packet of goods is ticked as successfully arranged.
In this way, Kmart is using above techniques for managing stock levels and inventory. The
company is able to decrease the unproductive stock by enabling the outlets to organize their own
inventories and decreasing sizes of packets across different product categories. It indicates that
this company has used its information technology capabilities to avail more stock in the case of
most desired products, while decreasing other stock levels. The computerized system at Kmart
links all the in-store terminals via radio frequency network. It supported the company and its
retail stores to keep the record of stock in its stores and hold the merchandize in inventory at its
distribution centers (Coelho & Laporte, 2014). The store replenishment of products and order
management are implemented with the assistance of computer via Point-of-Sales system. This
system enabled Kmart to supervise and track stock levels and sales on the shelves in Kmart’s
stores.

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Distribution and Transportation
Distribution and transportation system is one of the most significant parts of supply chain
management that assists the company to deliver products to final customers. Kmart is one of the
companies that are using effective techniques for managing its distribution and transportation
operations. Cross docking system is the most useful technique that is adopted by Kmart in order
to deliver its goods and items to final customers. Kmart Australia is the first organization that
introduced this system. Cross docking is a logistics process where the goods and services from
suppliers are distributed directly to the retailer and final customers with no storage or handling
(Ladier & Alpan, 2016). It can assist the organization in reduction of material handling and
requirement of products’ storage in warehouses. The decision related to merging its distribution
operations of Melbourne in 2011 was in agreement with the Dematic of supplier. This evaluated
choice of decision of equipment utilization with the whole analysis relevant to cross belt sorting
(Crandall, Crandal & Chen, 2014).
Recently, the company has created a distribution partnership for effective transportation to
enhance the overall efficiency of its operations. They have identical delivery carton sizes to
attain effectiveness in shipping of products. Its supply chain strategy consists of pick and pack
service convenient put away at its outlet. The company is continuously developing its supply
chain management countrywide to improve a cross docking system in Brisbane, Melbourne,
Perth and Sydney. Kmart’s supply chain forms the principal cost component of its profit,
generally 55 to 85% of its total sales. It includes two vital fundamentals i.e. strategic logistics
and strategic sourcing. These components include the flow of business process and evaluation to
recognize, plan, purchase, supply, warehouse, transfer and provide products and services to
different customers. Most importantly, supply chain system includes all the processes, behaviors
and judgments on cost life cycle from raw materials to final consumers (Wiengarten,
Humphreys, Gimenez & McIvor, 2016).
Kmart is one of the emerging retailers that have structured its supply chain with the distribution
centers scheduled to fulfill the customers’ demands in Australia and New Zealand. 25,000 team
members of Kmart are serving 2.5 million customers every week in over 190 outlets across New
Zealand and Australia. It has complex and extensive distribution network in the country with
various distribution centers in Sydney, Perth, Brisbane and Melbourne (Wesfarmers, 2015). The

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company has used value stream mapping technique that allowed Kmart to rectify different issues
like double handling, over-processing, movement and transportation wastage. It is delivering its
products and items by using different modes of transportation and making different efforts to
safeguard the materials and final products. Thus, as a leading retailer in Australia, Kmart is
engaged in adopting effective and upgraded distribution strategies so that they can delivery most
suitable and appropriate product to end users. It helps the organization to avoid the situation of
stock out and stock excess. Different initiatives taken by Kmart can be seen in the success and
effectiveness of its supply chain management practices in Australia and New Zealand
(Panayides, 2017).
Conclusion and Recommendations
In the limelight of above report, it can be concluded that supply chain management is one of the
most important processes which helps the organization to convert the raw materials into final
product by including different steps. The above report is totally focused on the supply chain
management practices of Kmart that is running its business as a profitable subsidiary of
Wesfarmers Limited in Australia. It includes different activities of supply chain management
which are managed by the company by using effective strategies. It is found that Kmart has
attained effectiveness in its supply chain via lean approach and methodology. It is using direct
type of sourcing which provides various benefits to both suppliers and company. Direct sourcing
assists Kmart to save additional costs on its supply chain. Last section of this report showcases
that Kmart is using different techniques for effective management of its inventory levels.
Primarily, the company is making investment in the information technology and upgrading the
processes. All the above activities are assisting Kmart to make an effective and successful supply
chain system for the company.
However, Kmart is using effective techniques and processes to implement its supply chain
activities and practices, but still there is need for improvement. There are various parts where the
organization still failed so it needs to emphasize on these areas. Thus, it is hereby recommended
that this organization should focus on improving the quality of its products. It should enhance the
existing supply chain and logistic process of Kmart so that it can attain positive and maximum
outcomes. However, it is able to generate significant profits and revenues by using different
inventory management and distribution techniques, but to stay competitive in local market; it

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should establish a strong relationship with its suppliers and vendors. It will help the company to
achieve its overall business objectives. Additionally, it can be suggested that the company should
develop appropriate policies to gain competitive advantage over other brands. The company may
have various opportunities launch its business in other international markets.
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Christopher, M.(2016). Logistics & Supply Chain Management. Pearson UK
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