Woolworths Operations Analysis and Recommendations: A Detailed Report

This report provides a comprehensive analysis of Woolworths' operations, with a specific focus on its inventory management system. The analysis identifies key operational challenges, including errors in the current system, such as incorrect stock counts due to RFID gun usage, and their impact on ordering, stock levels, and overall costs. The report then delves into the competitive landscape, assessing Woolworths' position relative to competitors like Coles, IGA, and Aldi, evaluating supplier and buyer power, and analyzing the threats of substitution and new entrants. Finally, the report proposes several recommendations to improve the inventory system's accuracy and efficiency, including the implementation of an ABC classification system, more frequent physical stock counts, and staff training on RFID gun usage. The goal is to reduce errors, optimize stock levels, and enhance customer satisfaction.

WOOLWORTHS OPERATIONS
Woolworths Operations
ANALYSIS AND RECOMMENDATION
18193190 - Muhammet Safa Topdas
18510717 - Matthew Thomas
18024438 - Luke Aquilina
18107311 - Ravi Krishna
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Table of Contents
Executive Summary ……...…………...…………...…………...…………...…………...…………...
…………...……………... 3
Introduction ……...…………...…………...…………...…………...…………...…………...…………...
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Operations and Logistics Analysis ……...…………...…………...…………...…………...
…………...……………... 5
Cost Benefit Analysis ……...…………...…………...…………...…………...…………...…………...
…………...…………... 6
Discussion ……...…………...…………...…………...…………...…………...…………...…………...
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Competitive Rivalry ……...…………...…………...…………...…………...…………...…………...
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Power of Suppliers ……...…………...…………...…………...…………...…………...…………...
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Power of Buyers ……...…………...…………...…………...…………...…………...…………...
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Threat of Substitutions ……...…………...…………...…………...…………...…………...
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Threat of New Entrants ……...…………...…………...…………...…………...…………...
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Recommendations ……...…………...…………...…………...…………...…………...…………...
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Solution 1: RFID count of Stock on Hand (SOH) ……...…………...…………...…………...
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ABC Classification System ……...…………...…………...…………...…………...…………...
………………….. 10
Solution 2: Physical Stock Count ……...…………...…………...…………...…………...
…………...…………….. 10
Solution 3: Large quantity order ……...…………...…………...…………...…………...
…………...………………. 10
RFID Guns Trainings ……...…………...…………...…………...…………...…………...
…………...…………...……. 10
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Conclusion ……...…………...…………...…………...…………...…………...…………...…………...
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References ……...…………...…………...…………...…………...…………...…………...…………...
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Appendix ……...…………...…………...…………...…………...…………...…………...…………...
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Executive Summary
Woolworth Limited is an Australian company focused on developing retail
solutions to the Australian and New Zealand nation and furthermore it’s also
the biggest in alcohol retailing in Australia. The company has a primary goal
of job creation with over 200,000 employees serving over 29 million
customers every week across the 992 stores operating currently. Although
the company ended with a loss of $1.6 million loss in the year 2016 it has
proved a rapid growth and development with a profit before tax of $ 2.6
million in 2017.
The most important factor that affects total cost in Woolworth supermarkets
is an online system that uses the Radio Frequency Identification (RFID) guns
as it results to errors in the inventory system such as incorrect orders, stock
location different from RFID location, RFID stock different from the correct
stock on hand, incorrect gap scan leading to less or excess stock and large
quantity order incorrectly scanned by the cashier.
Woolworth Limited faces rivalry in the grocery industry by companies such
as Coles, IGA and Aldi but continue to increase its market share by being
more effective and working extra miles than its competitors for a greater
future. Coles and Woolworth Limited are the top retailers in Australian
supermarket industry with a 71% market share.
Woolworth has several advantages over their competitors as it maintains
buyer’s power by striving to give their customers the best possible prices
hence maintaining a big market share. Most competitors are not willing to
enter the industry as it seems unattractive due to the low prices offered in
the retail stores.
The organization faces several challenges like; low suppliers power as there’s
a large amount of product in the market wishing to join the industry, threat
of substitution in the supermarket industry with convenient stores like fresh
food market and other supermarket competitive chains due to their
convenience, shorter/no queue and easy parking.
Woolworth Limited has several recommendations to solve the error of
inventory system. First, the company wants to implement the ABC
classification system which allows classification of inventory from the most
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importance to least importance by considering their priority, demand and
seasonal periods.
Woolworth is willing to solve the problem of inaccurate physical stock count
by performing periodic system more frequently to reduce discrepancies and
identify them easily in order to ensure correct order size and save ordering
and holding cost. The staff requires training on how to use RFID gun to avoid
entering multiple quantities of one product with different flavors as one item
affecting the accuracy of the stock levels.
Introduction
Woolworths Limited is a major Australian organization with broad retail
enthusiasm all through Australia and New Zealand. It is the second largest
organization in Australia by income, after Perth based retail-engaged
combination Wesfarmers Ltd. Furthermore, Woolworths Limited is the
biggest takeaway alcohol retailer in Australia.
Woolworths Limited was established in September 1924, initially under the
name "Woolworths Bazaar Ltd.", a play on the globally famous F. W.
Woolworth name. In the wake of finding the name had not been enlisted in
Australia, and Woolworths had no plans for abroad extension, the
organization progressed toward becoming "Woolworths Limited" on 22
September 1924. Following the organization's first "Bargain Basement"
opening in the Imperial Arcade, on Sydney's Pitt Street, there was little
enthusiasm for investors to quicken the brand's development. Be that as it
may, as exchanging proceeded and investors brought more capital, the
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profits paid by the organization expanded from 5% to half after its third year
of operation(Woolworthsgroup.com.au, 2017).
Woolworths has ended year 2016 with $1.6 million loss, however in 2017,
the organisation has shown a rapid development with $2.6 million profit
before interest and tax(see Appendix A). With its 992 stores operating
currently, Woolworths Supermarkets serve over 29 million customers across
their brands every week, with more than 200,000 team members
employed(Woolworthsgroup.com.au, 2017).
Operations and Logistics Analysis
Inventory Management at Woolworths supermarkets is currently achieved
through an online system which is complemented by Radio Frequency
Identification (RFID) guns to monitor stock counts and ensure the correct
load is received and ordered. The inventory system automatically orders the
load after approval by the duty manager based on sales and inventory data
from previous day (see appendix C Load Forecasting) . Incorrect inventory
data results in the incorrect load being ordered. This then leads to excess
stock which is a contributor to holdings costs and order costs.
The core problem in this system is the room for error which is determined by
multiple factors. The grocery load among with other items such as seafood
and meat is delivered to the store everyday. Each time a load is delivered a
member of staff must ‘receive the load’ which is done by entering the load
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serial number into an RFID gun and submitting this into the system. The load
is then recognised by the system and the items received will be added to
stock counts. After these items are filled by staff the left-overs or ‘overs’ are
tagged by the RFID gun and put into Long Term Overs (LTO). These items are
then filled the next day whilst staff utilise the RFID guns by modifying the
counts and changing stock locations.
The current system harbours too much room for error (see appendix B Load
Data).One element of the internal system affects another meaning the system as a
whole is interdependent on its sub elements (Senge,1990) The issues in the
inventory system include:
● Incorrect stock counts which lead to incorrect items in the next load.
● Stock location not synonymous with RFID location. This means either
the previous load was not received correctly or the item was scanned
into the wrong cage. This results again in the next load being incorrect.
● RFID count of Stock on Hand (SOH) not the same as actual stock on
hand.
● Gap Scan: refers to scanning the gaps on the shelves where stock has
been completely bought. The gap scan is performed every day to
ensure the inventory system orders correct items; Gap scan completed
incorrectly leads to minimal or excess stock, stock out or inventory
block.
● Large quantity order- An example would be an individual buys 10 cans
of dog food with multiple flavours, to save time the cashier only scans
one can ten times. The result being the count is now wrong meaning
the next load will then be wrong.
Cost Benefit Analysis
Solution/ Cost Benefit
ABC Classification software Products further categorised by
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system update priority to account for demand
Weekly Periodic system checks Common periodic inventory
counts will contribute to the
minimisation of incorrect stock
Working closer with supply chain Reduced lead time for items in
transit. Reduced chance of stock
out. Increased logistical
awareness.
RFID holds information on
product popularity, shelf life and
product arrival date.
Staff gain deeper product
knowledge which contributes to
customer satisfaction.
Proper utilization of the LTO
system
Using weekly periodic counts
along with ABC classification
system will reduce LTO item
count
Specialised managerial and staff
training on RFID
Managers and staff have in depth
RFID knowledge which will then
minimise human error.
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Discussion
Competitive Rivalry
Within the Australian grocery industry there are various organisations such
as Woolworths, Coles, IGA and Aldi who strive and compete within the
intense industry to limit the amount of market share that other supermarkets
acquire (Majumder, 2012). The intense rivalry that these competitors
produce within the market force Woolworths to continually shape their
strategy and value proposition to become more efficient and effective as an
organization, by differentiating themselves from their competition,
Woolworths will continue to develop as an organization to improve into the
future (24sevenwritters, 2013). The Australian supermarket industry is
currently controlled by Woolworths and Coles who remain the two dominant
retailers holding a combined market share of 71%.
Power of Suppliers
The power that the suppliers of Woolworths have is seen as low, due to the
fact that there is a large amount of products within Australia and New
Zealand market who wish to enter the industry by gaining exposure and
increasing their sales through a partnership with Woolworths. Therefore the
dependence that Woolworths have over majority of their suppliers and their
prices are low as there are a large amount of alternatives that could replace
a greedy supplier to be apart of the largest supermarket in Australia
(24sevenwritters, 2013).
Power of Buyers
Alternatively, the buyer power that the customers have over Woolworths is
seen as extremely high due to the fact that Woolworths strives to give their
consumers the best possible price to maintain their market share.
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Furthermore, if Woolworths decide to raise their prices they will lose
customers to competitor supermarkets, which is the worst-case scenario.
Therefore, Woolworths strive to keep the customers happy with the best
possible prices to gain the most market share and sales within the industry
(Majumder, 2012).
Threat of Substitution
Within the supermarket industry there are various alternatives for consumers
to purchase their products. These include convenience stores, non
supermarket affiliated petrol stations, pharmacies, fresh food markets and
other competitor supermarket chains. Customers are willing to pay higher
prices for the same products found in supermarkets, if it is seen as more
convenient. This means convenience stores within a close vicinity that has
no lines and easier parking. Therefore, the amount of substitutes in the
supermarket industry is seen and moderately high as there is opportunity for
some profit even though there is not a lot of market share to maintain
(Majumder, 2012).
Threat of new Entrants
The Australian supermarket industry is seen as an unattractive market to
enter. This is due to the low prices offered in australian retail stores that
seem to produce a low potential profit. With the market dominated by two
main organisations the threat of new entrants is seen as low with various
barriers of entry, which act as obstacles for new competitors who wish to
enter the industry.
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Recommendations
The main issue that has been addressed with Woolworths inventory system
is the room for error across a multitude of areas, with each element having
an impact on the next. The introduction of automated identification (Auto-ID)
technology such as RFID has enabled electronic labelling and wireless
identification of objects, which facilitates real-time product visibility and
data. However, it also presents many challenges due to lack of standards
and roadmaps to transform Auto-ID technologies into Auto-ID solutions (Mills-
Harris et al. 2006). The following solutions can set the standard for
Woolworth’s inventory system and improve its accuracy, to be able to serve
their customers better and save money.
Solution 1: RFID Count of Stock of Hand (SOH)
Woolworths sell a large range of different consumer products in all of their
supermarkets, with some of them having shorter shelf lives than others.
Therefore, higher tracking is needed for these types of inventory to ensure
the SOH is at the right level every time to meet demand, while also avoiding
the stock expiring on the shelves. Implementing the ABC classification
system allows inventory to be categorised according to a measure of
importance, to allocate control efforts from most important to least
important (Stevenson 2017). Categorising items such as meat and milk as
high priority Category A items is necessary, as these items have a short shelf
life and need to be closely monitored to meet demand, while still moving
quick enough that the product does not expire before it is purchased, which
becomes another cost factor (Mills-Harris et al. 2006). Ordering priority items
in smaller, more frequent quantities (with lead time factored) will reduce the
holding costs of the inventory in the supermarkets, however it will increase
ordering costs as the number of orders needed to satisfy customer demand
will increase. On the other hand, reducing the level of stock on hand will
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