Journal of Economics, Business, and Accountancy Ventura Volume 16, No. 1, April 2013, pages 27 – 46 Accreditation No. 80/DIKTI/Kep/2012
WOOLWORTHS AUSTRALIA AND WALMART US: BEST PRACTICES IN SUPPLY CHAIN COLLABORATION
Verdi Arli Sean Dylke, Rosie Burgess Romain Campus, Evita Soldo Macquarie Graduate School of Management E-mail: [email protected] Macquarie University, North Ryde, 2109, NSW, Australia
ABSTRACT This study analyses retail industries with the efforts of their supply chain collaboration (SCC) from manufacturers to consumers. It also describes the ways of identifying collaboration partners and build- ing partnership for sharing information, thus representing the best practices in such efforts. The success of building the collaboration in terms of supply chain is described through the observation and analyses on the journey undertaken by both Walmart US, and Woolworths Australia. This is said to have enabled the retailers to achieve greater organizational performance through driving common objectives in part- nership with their supply network. For examples there some empirical successes as achieved by Wool- worths such as saving of approximately AUD$75M within the first two years of project commencement, reduction in lead time of getting point-of-sale information from two weeks to every Monday morning for the previous week, integration of information technology into supply chain management, and improve- ment in sales by AUD$7 billion. It can be generalized that through the sharing of knowledge, resources, information, profits and risks, the companies are able to position themselves in an advantageous spot, where operational efficiencies and financial cost savings are paramount.
Key words: Woolworths, Walmart, Supply Chain Collaboration, Supply Chain Management, and Best Practices.
WOOLWORTHS AUSTRALIA DAN WALMART AS: BEST PRACTICES DALAM KOLABORASI RANTAI PASOKAN
ABSTRAK Penelitian ini menganalisis industri ritel dalam upaya penerapan supply chain collaboration (SCC/ kolaborasi rantai pasokan) dari produsen ke konsumen. Penelitian ini juga menjelaskan cara untuk mengidentifikasi mitra kolaborasi dan kemitraan untuk berbagi informasi. Keberhasilan membangun kerjasama dalam hal rantai pasokan digambarkan melalui observasi dan analisis pada pengalaman Walmart AS, dan Australia Woolworths. Hal ini ternyata telah memungkinkan ritel untuk mencapai kinerja organisasi yang lebih besar melalui penentuan tujuan bersama dalam kemitraan dengan jarin- gan pasokan mereka. Beberapa contoh keberhasilan empiris dicapai oleh Woolworths yaitu penghe- matan sekitar AUD $ 75 M dalam dua tahun pertama dimulainya proyek, pengurangan lead time untuk mendapatkan informasi point-of-sale minggu sebelumnya dari dua minggu setiap Senin pagi, integrasi teknologi informasi ke dalam manajemen rantai pasokan, dan peningkatan penjualan AUD $ 7 miliar. Dapat disimpulkan bahwa dengan berbagi pengetahuan, sumber daya, informasi, keuntungan dan risiko, perusahaan mampu menempatkan diri pada posisi yang menguntungkan, di mana efisiensi op- erasional dan penghematan biaya keuangan adalah hal yang sangat penting.
Kata Kunci: Woolworths, Walmart, Kolaborasi Rantai Pasokan, Manajemen Rantai Paso- kan, dan Best Practices.
27 ISSN 2087-3735 Woolworths Australia and … (Verdi Arli)
INTRODUCTION Australian dollar and the recent slowing of Woolworths Australia was founded over 80 economic growth are driving an acute focus years ago and employing over 180,000 peo- in the reduction of supply chain and over- ple, Woolworths is one of Australia’s pre- head costs. Actions undertaken include con- eminent organizations, with a brand value of solidating suppliers, to reduce resources at approximately AUD$4,600 million (Inter- the interface and the cost of doing business. brand 2009) and a ranking in the top 25 re- A focus on improving logistics, as well as tailers in the world (Deloitte 2011). Whilst passing a higher proportion of supply chain Woolworths currently owns the majority of management obligations back to suppliers grocery’s market share, competition from are other areas of focus (Spencer & Knee- competitors is on the rise. Woolworths and bone 2007). Coles particularly have increased the inten- Supply Chain Collaboration (SCC) is a sity of the battle for market share, promising process by which all companies in a supply to deliver the best customer experience at chain network actively work together to the lowest price. This is driven an acute em- achieve common objectives (Mentzer 2001). phasis on cost management and a focus on Leveraging strong foundations of trust, col- supply chain efficiencies (Symons 2010). laborators set goals and solve problems to- Walmart has become one of America's gether through the sharing of knowledge, most successful retail chains generating resources, information, profits and also risks. about USD$200 billion in sales annually This approach enables more efficient opera- from 3,500 stores worldwide. Not only is tions and also provides the end customer Walmart ranked as the top retailer globally, with more value (Fawcett, Magnan and but it has also been identified by over half of McCarter 2008). Americans, as a brand that reflects the nature Supply chain collaboration occurs of America itself (Dillow 2009); which is a amongst members of a supply chain, who noted achievement. The concept of Supply manage the processes such as the acquisition Chain Collaboration was developed by and transformation of raw materials to en- Walmart executives. Thus, Walmart’s jour- able delivery of a valued product to custom- ney in developing their supply chain proc- ers (Mentzer 2001; Lin, Chiu and Tseng esses to include collaborative forecasting, 2006). replenishment through providing retail links SCC has been repeatedly recognized as for communicating point-of-sale, forecasts, one of the most powerful management tech- and inventory information for its vast web of niques to respond to the challenges of highly suppliers provides a best practice case study competitive global markets, rapid techno- (Ireland and Crum 2005; Chiles and Dau logical advances and increasing customer 2005). demands (Lopez 2011). Through leveraging Woolworths and Walmart present inter- operational and strategic elements of SCC, esting and diverse case studies to evaluate companies can respond to these challenges, Supply Chain Collaboration, as the cost of whilst increasing organizational competi- doing business continues to increase, and the tiveness. retail sector itself evolves in response. The sector currently presents many challenges, THEORETICAL FRAMEWORK such as expansion of private labels (Spencer Supply Chain Collaboration (SCC) in the & Kneebone 2007), international entrants Retail Industry can be described as the fol- such as Aldi and Costco, and growth of big lowing. A full service retailer can expect to box retailers. A number of environmental, sell thousands of items from hundreds of political and geographical challenges that suppliers and manufacturers, making the regulate sales and profit growth also exist. management of such a supply chain critical For Australian retail, the strength of the and as such, a priority for any retail chain.
28 Journal of Economics, Business, and Accountancy Ventura Volume 16, No. 1, April 2013, pages 27 – 46 Accreditation No. 80/DIKTI/Kep/2012
As the competition increases, only retailers spend with the supplier and to then deter- with versatile and agile supply chains can mine how vulnerable the company would be maintain an effective competitive edge if the supplier failed or disengaged. The (Olugu and Wong 2009). The need for Kraljic Matrix is an effective tool in deter- supply chain’s versitility and agility is mining the positioning and consequent pri- further highlighted by increasing customer oritization of one’s suppliers (Caniels and demands and awareness levels, which drive Gelderman 2005): heightned product substitution and also Once collaborative partners have been shortened product lifecycles (Beamon 1999). identified (i.e.: the ‘who’ of the relation- Overall, supply chain management is a criti- ship), designing the ‘what’ of the collabora- cal issue for retailers to manage. tive relationship is also important. Only crit- To operate and deliver effectively and ical key components, products and systems customer, retailers, suppliers, manufacturers, should be focused on (Mentzer 2001b). and distributors must combine their working Best practice is to choose key suppliers efforts (Lin, Chiu and Tseng 2006). Such (or, sometimes target key customers for collaboration can be achieved through a fo- conversion to suppliers), engage them in cus on core competencies and targeting in- building a collaborative relationship, resolve vestment to develop strong partnership rela- any teething issues and then move on to the tionships built on shared information and next key supplier and/or customer. Once trust, with carefully selected suppliers (Stu- collaboration begins with key supply chain art and McCutcheon 2000). members, it eventually becomes embedded In the retail industry, such collaboration in everyday practice, requiring less attention can be difficult to achieve, as supply chain than during the set-up phase, and the focus participants (who can largely be categorized can turn to creating new collaborative rela- as either manufacturers or retailers) gener- tionships (Mentzer 2001b). ally have very distinct needs and business goals, with little common ground. Thus, col- Different Motivation and Setting the laboration is not an either/or situation, but Strategy rather must be a balanced combination of The motivation for an organization to col- both ‘shared’ and ‘selfish’ goals, that to- laborate depends not only on their unique gether enable the customer to receive more corporate strategy, but also on the intricacies value (Gonzalez 2011). of their surrounding environment, particu- larly in regards to the demand and supply Identifying Supply Chain Collaboration characteristics (Lee 2002). Partners In a mature market with low demand Due the nature of cooperation and commit- and supply uncertainty, organizations are ment required by SCC, it is not possible to likely to aim for a higher level of supply collaborate with everyone. Neither should all chain integration (driven through collabora- suppliers be collaborated with in an in depth tion) in order to maximize efficiencies. manner. Thus, the main challenge of SCC is Conversely, if an organization’s aim is determining with which suppliers to drive to achieve growth within a new environment collaborative partnerships. The solution is to that presents a higher level of uncertainty, determine what level of value each supplier supply chain collaboration will be driven by adds to both the business and also to com- the need to remain flexible in order to quick- mon customers, and to then pursue and de- ly adapt to the changing market that sur- velop collaborative relationships with them rounds them. alone (Mentzer 2001b) The Uncertainty Framework (Lee 2002) A common method for determining sup- provides an effective tool for considering the plier value is to calculate the amount of nature of the demand and supply characteris-
29 ISSN 2087-3735 Woolworths Australia and … (Verdi Arli)
Figure 1 Demand and Supply Characteristics as Supply Chain Strategy Motivators
tics faced by an organization, and then de- kets, both customer and industry expectations termining the best supply chain strategy to are based on economical preferences but implement. Using Lee’s uncertainty frame- minimal similarities to the USA has led to work, we identify Woolworths and Wal- Walmart’s supply chain requiring an element Mart position as shown in Figure 1. of adaptability to the environment, therefore The Woolworths and Walmart examples driving it to an agile supply chain. demonstrate how investment in SCC can be driven by distinct needs. Specifically, in the Levels of Supply Chain Collaboration and case of Woolworths, the primary motivator Relationship Types to drive SCC was the need to integrate and Participants of a supply chain can collabo- thus to improve operational efficiencies. The rate in a number of ways to try to improve company’s main objective is to provide eve- their own position and processes along the ryday low price to its customers. Therefore, chain, either directly or indirectly. There is all value-created activities are geared toward no solution that is ideal for every participant, this strategy. Moreover, the intensive com- but rather a number of options can be con- petition with Coles in the Australian market sidered based on the composition of any in- also drives Woolworths’ strategy. Pressure is dividual chain. increasing in supply chains as retailers are competing to deliver the lowest possible Levels of Supply Chain prices. Collaboration in the supply chain comes in a Conversely, in the case of Walmart, driv- wide range of forms, generally with a com- ing flexible growth is a key motivator for col- mon goal of creating a transparent, visible laboration. A key focus of Walmart’s busi- demand pattern. (Holweg, Disney, Holm- ness strategy is globalization; therefore the strom, Smaros 2005). Figure 2 outlines four need to remain economical is a critical need. concepts of collaboration, differing based on Specifically, as Walmart’s expansion grows the level of collaboration between the supply to unfamiliar regions, new markets entered chain participants, in both the approach to have differing demands. In these new mar- planning and to inventory.
30 Journal of Economics, Business, and Accountancy Ventura Volume 16, No. 1, April 2013, pages 27 – 46 Accreditation No. 80/DIKTI/Kep/2012
Figure 2 Basic Supply Chain Configurations for Collaboration
Adapted from Holweg et al. 2005. Type 0: The traditional supply chain: management of inventory. This requires re- The traditional supply chain involves no in- tailers to provide data in real time at the formation sharing beyond the purchase order. check-out counter to key suppliers. Sharing This requires the supplier to estimate future data at this level involves a certain degree of demand and often results in the bullwhip ef- trust between retailers, suppliers and others fect. This is common for many products in within the supply chain networks. grocery stores around the world. One exam- In this situation, the retailer and supplier ple by Holweg, et al. (2005) found that bot- still order independently, but exchange de- tles of soft drink, although sold at a fairly mand information and action plans are shared constant rate, where stores were reordering to align forecasts for capacity and long-term from regional distribution centers (RDC) planning. This system helps to reduce uncer- above the necessary level (not using point of tainty and therefore the bullwhip. However, sale intelligence to drive reorder quantities). in many cases, the retailer often does not The bullwhip effect was even more severe for have the right level of information to enable the RDC as they ordered against their fore- the supplier to gain maximum benefit. casts and at times ordered up to five times the Wal-Mart has been very successful at re- weekly sales volumes from the supermarket. alizing cost efficiencies by sharing informa- Interestingly, this model is seen as accept- tion. Specifically, this is achieved through the able and almost desirable for manufacturers of transmission of point of sale information to some goods. As the manufacturers will have suppliers, and the triggering of electronically multiple plants working with 15 - 20 sales orders when stock levels reach a predeter- companies, supplying hundreds of large dis- mined level (Samaddar et al. 2006). tributors and retail chains, they accept that it would be too difficult to effectively collabo- Type 2: Vendor Managed Inventory rate with all of them in the same way. Vendor-Managed Inventory (VMI) involves the supplier controlling and taking responsi- Type 1: Information Sharing bility for the retailer’s inventory. In the retail More and more retailers share their sales sector this is essential to efficiently deliver information with their suppliers to enable consumer responsiveness, helping to speed better forecasting of demand and better up the supply chain and cope with short
31 ISSN 2087-3735 Woolworths Australia and … (Verdi Arli) product life cycles. One benefit for the re- tionships and in each of these effective col- tailer is that the supplier assumes responsi- laboration is essential. bility to ensure there is adequate stock at the 1. Competitive tension relationships retailer. As such, the supplier will often give In competitive tension relationships the firm preference to these retailers when there is a will use an individual supplier for each item, supply shortage. but not the same supplier for all items. With Manufacturers receive real-time infor- the higher volumes, a supplier is able to in- mation on specific product sales, providing vest more in R&D and achieve higher econ- the detailed information required to produce omies of scale. The fact that there are differ- more products to restock retail shelves. The ent suppliers for different products, and vendor-managed inventory must be sup- known alternatives, ensures that the supplier ported by key suppliers by having common stays competitive on price and quality. A product-description language (Konicki benefit of a competitive tension relationship 2002). is that it can emphasize the simplicity of Big retailers plan to provide inventory transactional cost reductions, and build on visibility to the single-item level and share competency trust that enables streamlined such information with others along their communications and improved supplier re- supply chain networks. By sharing informa- sponse to deficiencies (Stuart and McCutch- tion, the key manufacturers can plan for de- eon 2000). mand and manage inventory in their stores. Once the retailer trusts the supplier, they The most common vendor managed inven- will allow them to ship products directly to tory (VMI) used by some of the world larg- the retail outlets without additional handling, est retailers is UCCnet global registry and enable the supplier to manage the pay- (Blanchard, Comm, Mathaisel 2008). Retail- ment process upon delivery through ‘Kaiser ers and manufacturers alike are able to use purchase-order drafts’ (Stuart and the registry to synchronize product informa- McCutcheon 2000). Further savings can be tion, enabling them to work together on re- found by implementing pricing models based plenishment and planning provides a com- on the supplier's direct cost estimates, thereby mon inventory language for companies. eliminating bargaining and pricing disputes. 2. Strategic Alliances Type 3: Synchronized Supply Chain Strategic alliances rely on the supplier and The synchronized supply chain merges the retailer to share and agree that their mutual two decision points into one. In this situation objective is to use complementary assets to the supplier takes charge of the customer’s gain long-term competitive advantage (Stuart inventory and uses this visibility to plan his and McCutcheon 2000). This involves a very own supply operations. With demand being high level of trust in the supplier and effort in determined at a single decision point, it is developing the working relationship. Once impossible for the retailer and supplier to the working relationship has developed, both over or under order – eliminating the bull- parties will divulge critical information that is whip effect. relevant to each and to their common objec- tive. The firm can provide its partners with Supply Chain Relationship Types marketing information, sales targets, sales Looking beyond efficiencies that can be margins, technical information, receiving gained from sharing logistical information, technical advice, product design, integration Stuart and McCutcheon (2000) discuss the assistance and real-time scan information in development of trusting relationships for return (Stuart and McCutcheon 2000). The improved product quality. The two types of level of information sharing will depend on relationships discussed are competitive ten- the perceived matching of goals of each part- sion relationships and strategic alliance rela- ner (Samaddar et al. 2006).
32 Journal of Economics, Business, and Accountancy Ventura Volume 16, No. 1, April 2013, pages 27 – 46 Accreditation No. 80/DIKTI/Kep/2012
To capture the maximum benefit of such all’ solution that can apply to every retailer, alliances, multiple interaction channels must supplier, or manufacturer. The level or type be built. Channels might include staff ex- of collaboration will vary based on geo- changes, regular forums to discuss areas of graphical dispersion, logistic lead time and mutual concern, and relaxed procedures that product characteristics (Holweg et al. 2005). encourage the easy flow of communication Due to geographical dispersion, the more between the employees of the two partners reorder decision points there are in the proc- (Stuart and McCutcheon 2000). ess, the more difficult it will be to fully syn- As strategic alliances take time to de- chronize the processes. As such, the return on velop, an interim relationship is proposed investment for the synchronization has to be (which should evolve over time) which in- large enough to justify the costs and efforts. cludes supplier development. In this interim The higher the value of the product, cost of relationship, there is a cooperative partner- inventory, and the shorter the product life ship that involves working closely with a cycle, the more likely such efforts could be supplier on problems the firms jointly face, justified (Holweg et al. 2005). principally over delivery and conformance In the food retail industry one of the quality (Stuart and McCutcheon 2000). biggest challenges is shelf life of fresh, per- 3. Profit Sharing Contracts ishable foods. Supply chain collaboration An additional form of collaboration which is can offer strong returns if the sharing of proposed by Leng and Parlar (2009) is a simple forecasting information is used to profit sharing contract in a two level supply reduce the amount of wasted stock and stock chain. In this relationship, supply chain in transit (Holweg et al. 2005). members share the system-wide profits that When comparing collaboration between are made by the members. Profit sharing in large multinationals and smaller local sup- the form of cooperatives or suppliers selling pliers, multinationals’ synchronization ef- to retailers at wholesale prices and sharing forts should be focused on the products that end profit, this is also an effective collabora- offer the best opportunities of linking local tion. Profit sharing schemes are in line with demand with local supply as products that strategic alliances mentioned above, where- are supplied centrally or regionally by large by both parties invest in working towards manufacturers. This will enable the cost the same objective of maximizing the profit benefit ratio of collaboration to reduce of the overall chain. (Holweg et al. 2005). Conversely, smaller manufacturers will benefit from greater col- Implementing Different Supply Chain Col- laboration to improve customer responsive- laboration Levels and Relationship Types ness and meet the local, specific customer’s Frequently, collaboration focuses on the key needs. outcome of reducing lead times; this can Looking at the relationship models pro- result in multiple benefits, including an in- posed by Stuart and McCutcheon (2000), crease in forecast accuracy, lowering of lev- competitive tension relationships should be els of safety stock required and decreased pursued when there are a variety of suppliers frequency of out-of-stock occurrences. Cu- to choose from and switching cost may be mulatively, these benefits lead to a reduction relatively low. The outcomes that the retailer in finished goods inventory levels, and ulti- should be looking for are reduced costs mately a reduction in the bullwhip effect and (through economies of scale) and improved consequently lower costs (Leng and Parlar product quality as the supplier should be 2009). able to justify spending more on R&D. Within the highly competitive retail in- Strategic alliances should be reserved dustry, collaboration can offer a variety of for situations where the supplier’s expertise benefits. However, there is no ‘one size fits is unique or difficult to source. The strategic
33 ISSN 2087-3735 Woolworths Australia and … (Verdi Arli) alliance will be designed to deliver better this, with the creation of specific initiatives to product specifically tailored to the retailer's engender supplier trust. For example, estab- needs. For a grocery retailer like Wool- lishing a common language of quality stan- worths, this may include their inventory dards, embedded through the ‘Woolworths management systems or scanning systems Quality Assurance’ biannual certification (Stuart and McCutcheon 2000). process, involving independent audits of The interim relationship proposed by more than 2,300 suppliers (Woolworths, Stuart and McCutcheon (2000) is applicable Woolworths Limited Corporate responsibility to all levels of retail where there are obvious report 2009). In this way, high product qual- problems that affect both the retailer and ity and safety is ensured, and common operat- supplier. By communicating about the prob- ing standards are established. To further em- lem and working together on a project team, bed this process, Woolworths also provides specific issues may be resolved without suppliers with ongoing feedback and recog- making large investments in data transfer nizes outstanding achievements through an systems, or worrying about sharing highly annual ‘Supplier of the Year’ award. sensitive intellectual property. Another example is the reason why Woolworths holding regular meetings with Enabling Supply Chain Collaboration suppliers to discuss The Fresh Food People through Trust Code of Conduct (Woolworths 2008a). It Establishing and maintaining successful col- also launched an e-mail service to respond to laborative relationships requires significant supplier queries and a website to inform investment of both time and effort from all them about doing business with the com- parties involved, especially considering the pany. In this way, processes and systems are complexities of everyday business and com- discussed openly with suppliers to develop petition that by definition, detract from col- collaborative relationships. laboration (Mentzer 2001a). Modularity is another tactic use to estab- Trust is the basis of flexibility, innova- lish trust, which provides suppliers the free- tion, agility and effective decision making dom in production to design and propose (Beth, et al. 2003), and thus perhaps the sin- cost saving measures. By proxy, modularity gle most important element in enabling a enables collaboration, as supply chain par- collaborative relationship that will sustain ticipants’ work together to reduce costs, over time (Mentzer 2001a). Without a strong therefore creating increased customer and foundation of trust, it is impossible for sup- improvements in operational efficiencies. ply chain participants to achieve the required level of alignment, engagement and consis- Long-Term View and Shared Benefit/Risk tency to enable collaborative decision- Reliable, consistent relationships enable making and actions. Many factors must be supply to become more sustainable, which considered and addresses in order to estab- flows on to improved consistency, reduced lish a strong foundation of trust: need for quality control checks and safety stock. Usually, such levels of reliability and Consistent Expectations and Goals consistency are only achieved once the col- To establish trust, both supply chain parties laborative relationship is well established must focus on achieving alignment, espe- and operating on a ‘business as usual’ basis. cially in terms of common strategic goals To get to this point, a great deal of commit- and inherent company values (Beth et al. ment is required by both parties involved. 2003). An effective way to implement such Thus, to ensure return on this investment, alignment in practice is through establishing supply chain participants should ideally joint metrics and or operational standards. maintain such partnerships long term. Woolworths provides a good example of While contractual agreements can help
34 Journal of Economics, Business, and Accountancy Ventura Volume 16, No. 1, April 2013, pages 27 – 46 Accreditation No. 80/DIKTI/Kep/2012 to ensure a long term focus, this approach software that organizes and interconnects can also unintentionally erode trust. There- most day-to-day tasks of business (Donovan fore written agreements should be pursued 1999). The integration of an ERP system to with caution. company system is critical to successfully Woolworths maintains long-term rela- collaborate. However, it can be a challenge tionships with suppliers; more than 80% to successfully implement technology to the have operated together for ten years or more supply chain due to supplier or employee (Woolworths 2008a). Another example is refusal to adapt the new technology. All key Woolworths’ approach to commercial prop- stakeholders need to believe in the new erty leasing. Typically, a lease of 10-15 technology and understand the long-term years is sought to provide certainty to the benefit. One way to provide better under- property owner, and in return, Woolworths standing among key stakeholders is by pro- requests rental discounts and competitor dis- viding in-depth training and development tance restrictions. programs. An example of Woolworths demonstrat- Woolworths continuously invests in new ing a long term commitment to a supplier technology to add value to their products. and sharing risk is the decision to support The company had implemented a B2B sys- the Australian banana industry through un- tem to help its suppliers to do business elec- expected natural disasters. As explained by tronically. Through its website, the organiza- the Head of Supermarkets; “Woolworths has tion shares information needed to facilitate a long term commitment to help growers in the use of this technology. The objectives the region recover from this tragedy… the are to increase collaborative business proc- company has initiated discussions with a esses, improve procurement efficiencies, view to assisting the industry on a grower by better service level and also overall Supply grower basis…including commitments to chain visibility and efficiency assist with current expenses against forward To improve procurement efficiencies, production” (Woolworths 2008a). Woolworths introduced StockSmart and Woolworths again honored this com- AutoStockR systems. The systems enable mitment in response to the more recent Woolworths to forecast stock replenishment flooding disaster. Despite incurring signifi- at distribution centers and stores respec- cant losses, Woolworths protected fresh pro- tively. The Systems also contributed to a duce suppliers by not importing product better collaboration within the organization from overseas and relaxing quality specifica- which results in a continuous increase in net tions (The Age 2011). profit. As a result there was a 10.3% in- crease for the first quarter of 2011. Informa- Technology tion sharing has significantly improved visi- Technology can be an effective tool for ena- bility throughout the chain and reduced the bling collaboration across the supply chain bullwhip effect. network. Information sharing, as well as in- ventory planning and replenishment can be Share Common Vision and Objectives optimized through technology. It could sig- A silo mentality is often evident within a nificantly improve operations efficiencies supply chain, especially when individual and flexibility which will eliminate waste contributors within departments are re- while adding value across the supply chain. warded for meeting departmental objectives, Companies have begun to leverage Supply rather than for contributing to an overall, Chain technology to improve their opera- cohesive supply chain strategy. This context tions (Boubekri 2000). leaves the managers no incentive to cooper- Enterprise Resource Planning (ERP) so- ate or engage within the supply network, lution is an increasingly popular category of despite the fact that doing so will reduce
35 ISSN 2087-3735 Woolworths Australia and … (Verdi Arli) overall supply chain costs for all involved. It Woolworths has developed the ‘Every- is therefore necessary to have a measure- day Rewards Program’ with the goal of gain- ment system that can capture the benefits of ing a better understanding of customer behav- collaboration. Similarly, all individuals in- ior and to make them a willing participant in volved must be enabled to understand their supply chain collaboration. To ensure that individual role in realizing supply chain ben- customers return and encourage loyalty, re- efits. People must think holistically and un- tailers have implemented customer retention derstand the impact of individual actions on programs. Woolworths successfully inte- the broader supply chain’s efficiency and grated customers into their supply chain with effectiveness. To embed such an approach, the introduction of the customer loyalty pro- incentives must reflect this common vision. gram called ’Woolworths Everyday Re- In Woolworths’ case, stakeholder en- wards‘. This initiative rewards its customers gagement in developing a sustainable supply with fuel savings or Qantas Frequent Flyer chain, from customers to shareholders, is points (Woolworths 2010). In doing so, was constant. Annual shared objectives sessions able to gain meaningful insights to customer are scheduled, whereby Woolworths and its behavior and leverage this information to suppliers build a joint plan. Suppliers dem- achieve operational efficiencies. onstrating success in building sustainable Woolworths continuously strives to get products, packaging or processes, are also customer feedback on specific issues such as recognized and rewarded. evaluating the shopping experience, evaluat- ing new store designs and the self-checkout Common Customer Relationship Man- system. The company introduced a ’cus- agement Approach tomer immersion program’ in order to see its Building a customer relationship manage- operations through the eyes of its customers ment system is essential to enable collabora- and thus to have a better understanding of tion with customers and to help in under- their expectations. standing expectations. Companies have to Walmart uses its mountain of data to understand what customers’ value and adapt push for greater efficiency at all levels of its the supply chain to reflect these needs. Re- operations, from the front of the store, where tailers are now required to attract customers products are stocked based on expected de- on their first purchase, through market orien- mand, to the back, where details about a tation, innovative technology and value crea- manufacturer's punctuality, for example, are tion. The whole organization must focus recorded for future use. The purpose is to upon the needs of customers by addressing protect Walmart from the retailer's night- different levels of a product, whereby the mare: too much inventory, or not enough. organization not only supplies the actual, By its own count, Walmart has 460 terabytes tangible product, but also the core product of data stored on Teradata mainframes, and its benefit, and also the augmented made by NCR, at its Bentonville headquar- product such as a rewards program and bet- ters. To put that in perspective, the Internet ter customer service. has less than half as much data, according to By linking customer value to supply experts (Hays 2004). chain strategy, companies are able to trans- late these requirements into an offer. This Organizational Design and People Proc- must be followed by identifying what it esses takes to succeed and how to deliver the Many organizations, regardless of industry, proposition to customers. Supply chain col- have difficulty with supply chain talent laboration holds the promise of communicat- management, organizational design and oth- ing consumer behavior in real-time to multi- er people-related matters. Overcoming these ple levels in the value chain. ‘people’ challenges has proven to be vitally
36 Journal of Economics, Business, and Accountancy Ventura Volume 16, No. 1, April 2013, pages 27 – 46 Accreditation No. 80/DIKTI/Kep/2012 important to the, achievement of supply The success of this is based on the triple-A chain goals. Roles, responsibilities, and team supply chain concept where agility, adapta- membership, shape the way that people in- bility and alignment are synchronized for the teract and relate to each other in the supply entire supply chain (Beth et al. 2003). chain. An ineffective organizational struc- Operational outcomes linked to agility, ture can exclude keys stakeholders from include reduced lead times for product de- keys decisions and inhibit the collaboration livery and enhanced accuracy in forecasts. In needed to achieve strategy alignment. Fur- the retail industry this is particularly impor- thermore, the skills and capabilities of the tant as perishable items are generally in- people are essential for successful collabora- volved; inaccurate forecasting will result in tion. It is very important to ensure the ’right significant financial waste. Excessive inven- people’ are in the ’right roles’ to maintain tory also leads to the issue where the prod- the desired level of performance in a col- ucts should be stored as overhead costs of laborative environment. distribution centers need to be considered. During collaboration, alignment in- RESEARCH METHOD cludes issues such as the type of a product’s This is a qualitative research that is a case packaging utilized by the retailer. Poor study concerning the supply chain collabora- alignment has an impact in the efficiency of tion (SCC) implemented in retail industries. the broader supply chain - specifically the The objects of this study are the retail indus- handling and shipping processes. Thus, an tries: Woolworths Australia and Wal-Mart outcome of effective collaboration is the United States (US). The analysis is done by adaptability of the supplier to be open to both theoretically based and empirically product development, with the creation of success story-based as having been experi- new, streamlined packaging to ensure opera- enced by the retail industries used as the tional success. sample above. The theoretical basis is taken Closely interlinked with operational ef- from some references or library research ficacies is the key enabler of trust between concerning supply chain collaboration the suppliers and the retailers. Collaborative (SCC) and all related to it. The empirical relationships based on strong foundations of data concerns the stories of successes as ex- trust enable delivery and quality standards to perienced by the retail industries used as the be maintained without suppliers requiring sample in this study. The analysis also con- reminders or monitoring. This then ulti- cerns the factors indicated by their saving mately achieves an outcome of reduced sup- within the project commencement, reduction ply-related transaction costs (Stuart and in lead time, integration of information tech- McCutcheon 2000). nology, also their improvement in sales. Financially, well managed inventory and Through the indicators taken from the em- well controlled supply chain collaboration, pirical data in the successes by the retail in- provide companies with the outcome of dustries, Woolworths Australia and Wal- tighter control of cash flows, increased re- Mart United States (US), all inferences can ported revenue in the annual P&L therefore be done. By doing so, conclusions, recom- greater shareholder value. Other benefit with mendations, and suggestions can be drawn. specific financial ramifications includes re- duction in inventory, reduced cycle times, DATA ANALYSIS AND DISCUSSION improvements in customer service, and in- Supply Chain Collaboration Outcomes creased efficiency in the utilization of hu- There are several benefits that are a direct man resources. result of supply chain collaboration, all of Additionally, other non-financial bene- which lead to the final outcome of financial fits derived from collaboration include pro- savings and improved operational efficiency. viding new products to market faster, an in-
37 ISSN 2087-3735 Woolworths Australia and … (Verdi Arli)
Figure 3 Walmart Supply Chain Collaboration Implementation
ternal focus on core competencies, an en- ucts appealed to customers as they were of- hanced public image, greater trust and inter- ten priced significantly lower than brand dependence through a greater emphasis on name merchandise and generated higher the supply chain, increased knowledge over- margins than the Walmart's branded prod- all facilitated through sharing of informa- ucts. tion, ideas and technology, and competitive As a result, Walmart started sourcing advantage over other supply chains. products globally, opening offices in China “All benefits eventually affect the bot- during the mid-1980s. Walmart's new inter- tom line, whether directly or indi- national purchasing offices expanded the rectly…once companies understand this, companies supply chain capabilities by al- they are ready to make the commitment lowing the company to work directly with to begin collaborating with key supply local factories to source Walmart’s private chain members” (Mentzer 2001b, p.84) label merchandise. To strengthen supply chain operations for Walmart, private label Collaboration in Practice buyers met every quarter, to review new SCC Implementation at Walmart US merchandise, exchange buying notes and The implementation of supply chain collabo- tips and review a fully-merchandised proto- ration at Walmart leads to an efficient sup- type store, located within a warehouse. For ply chain. Then as Walmart started to enter the remainder of their operations, Walmart new markets the efficient supply chain start- was established as leader in sophisticated ed to adapt to its environment and evolve technology to make its supply chain leaner towards an agile supply chain. Figure 3 and to track inventory shows the implementation of supply chain activates over the last four decades. Distribution Walmart’s distribution strategy was the key Purchasing driver in the selection of where new stores Private label products were first developed were to be opened. Walmart had a supply at Walmart during the 1980s and account for chain advantage of owning an in-house 20 percent of 2005 sales. Private label prod- trucking division that was responsible for
38 Journal of Economics, Business, and Accountancy Ventura Volume 16, No. 1, April 2013, pages 27 – 46 Accreditation No. 80/DIKTI/Kep/2012 collecting products at the supplier’s ware- ers that a supplier promotes its own products houses and delivering stock to the distribu- at-the expense of Walmart’s revenue, the tion centers. Here, shipments are cross- retailer may name a new captain in its stead docked, or directly transferred from inbound (Lynn 2006). to outbound trailers without extra storage. To ensure that stock moved efficiently Information Systems through the distribution centers, Walmart Retailers are now looking for better ways to worked with suppliers to standardize case cut down inventory management costs, sizes and labeling. Merchandise purchased while establishing a better visibility along directly from factories in offshore locations their supply chain. Supply chain visibility such as China or India is processed at coastal has been identified by industry research as distribution centers before shipment to the one of the most difficult task supply chain USA stores. managers are facing. In the 1970’s Walmart Walmart utilizes their trucks for addi- adopted technology to help facilitate pur- tional profit by generating ‘back-haul’ reve- chasing requirements. In the mid-1980s, nue by transporting unsold merchandise the Walmart invested in a central database, trucks that would be otherwise empty. By store-level point-of-sale systems, and a satel- maximizing return journeys to suppliers as a lite network. Combined with one of the retail ‘for-hire’ carrier, additional revenue of industry's first chain-wide implementation of USD$1 billion per year was generated (DC UPC bar codes, store-level information Velocity 2004). could now be collected instantaneously and analyzed. By combining sales data with ex- Retail Strategy ternal information such as weather forecasts, Effective supply chain collaboration extends Walmart was able to provide additional sup- right through to retail strategy. In order to port to buyers, improving the accuracy of its increase sales, Walmart buyers and suppliers purchasing forecasts. collaborated together to agree on price roll- In the early 1990s, Walmart developed back campaigns. Price rollbacks lasted about Retail Link, the largest civilian database in 90 days and were funded by suppliers. The the world. Retail Link contained data on aim was to increase sales by 200-500% and every sale made at the company during a establish a competitive advantage over other two-decade period. Walmart gave its suppli- retailers. This also drove customer loyalty ers access to real-time sales data on the with Walmart prices being on average, eight products they supplied, down to individual percent to 27 percent lower than the compe- stock-keeping units (SKU) at the store level. tition (Beaver 2005). Walmart was one of the first companies to Supply chain collaboration continued to open up access to sales data to its suppliers, evolve in Walmart as they introduced the enabling them to make their own analysis on concept of ‘category captains’ in order to why their products sold or did not sell harness knowledge of their suppliers. This (Fishman 2006). Retail Link, which pro- was implemented in the late 1980s and has a vided sales information by item, store and key role of providing input on shelf space day, saved suppliers’ time and reduced their allocation. As an observer noted that one cost. obvious result of using category captains is In exchange for providing suppliers ac- that producers like Colgate-Palmolive will cess to the data, Walmart expected them to end up working intensively with firms it proactively monitor and replenish product formerly competed with, such as Crest man- on a continual basis. In 1990, Walmart be- ufacturer P&G, to find the mix of products came one of the early adopters of collabora- that will allow Walmart to earn the most it tive planning, forecasting and replenishment can from its shelf space. If Walmart discov- (CPRF). CPRF is an integrated approach to
39 ISSN 2087-3735 Woolworths Australia and … (Verdi Arli) planning and forecasting by sharing critical to cost reduction. One third of the saving supply chain information, such as data on went to Walmart, on-third to Sara Lee and promotion, inventory levels and daily sales one-third was passed on to the consumer in (Johnson 2002). Walmart's vendor-managed price reduction (Fishman 2006). inventory (VMI) program (also known as Walmart also learnt that success came continuous replenishment) required suppli- with placing trust in its key suppliers. Fur- ers to manage inventory levels at the com- ther proof of this was a result of successful pany’s distribution centers, based on agreed- collaboration when Walmart had to trust upon service levels. The VMI program start- P&G enough to share sales, price data and ed with P&G diapers in the late 1980s and cede to control of the order process and in- by 2006 had expanded to include many sup- ventory management to P&G. P&G had to plier and SKU’s (Andel 1995). In some situ- return the same level of trust to Walmart, ations, particularly grocery products, suppli- enough to dedicate a large cross-functional ers owned the inventory in Walmart stores team to the Walmart account that concen- up to the point that the sale was scanned at trated on finding ways to increase sales of its checkout. products through Walmart (Kumar 1996). To support this inventory management As a result of the lessons learnt and the effort, supplier analysts worked closely with implementation of supply chain collabora- Walmart’s supply chain personnel to co- tion, Walmart was able to maintain low pric- ordinate the flow of products from suppliers’ es and meet customers’ needs. Walmart con- factories and resolved any supply chain is- tinues to engage in strong relationship with sues. These included ensuring that products local suppliers, industries and customers. were ready for pickup by Walmart’s trucks, arranging for the return of defective prod- SCC Implementation at Woolworths ucts, to last-minute issues such as managing The implementation of supply chain collabo- sudden spikes in demand for popular items. ration activities in Woolworths were based In addition to managing short-term in- on achieving and operational efficiency, ventory and discussing product trends, which to date, is still leveraged throughout Walmart worked with suppliers on medium the organization. Figure 4 outlines the sup- to long-term supply chain strategy including ply chain activities as they were imple- factory location, co-operation with down- mented throughout the last two decades. stream raw materials suppliers and produc- tion volume forecasting. Distribution The focus on supply chain collaboration was Achievements and Lessons Learnt at Wal- in line with Woolworths philosophy of op- mart erational excellence, instigated following Walmart established a competitive advan- supply issues experienced in the late 1990’s, tage in the market by leveraging the effi- when complexities arose due to the different ciency of the supply chain by achieving the interfaces that existed between suppliers and best capacity and pursuing economies of Woolworths. Issues such as stock-out were scale. The concept of this strategy was to experienced, not due to lack of product, as work closely with vendors (Bhatnagar the warehouses held more stock but because 2006); key suppliers were identified, and of insufficient collaboration along the supply collaborative relationships were built to re- chain. Woolworths’ supply chain focus was duce cost and match customer needs. instrumental in reducing costs, keeping food A lesson of successful collaboration prices down, increasing efficiency and co- came from a relationship nurtured with Sara operation with the suppliers (Maseeha, Lee. Together, Woolworths and the supplier Perepu, Purkayastha 2009). implementing distribution changes that led Woolworths implemented a centralized
40 Journal of Economics, Business, and Accountancy Ventura Volume 16, No. 1, April 2013, pages 27 – 46 Accreditation No. 80/DIKTI/Kep/2012
Figure 4 Woolworths Supply Chain Collaboration Implementation
supply chain structure in July 2000. In order and outsources non-core competencies; to streamline the processes Woolworth then Woolworths outsourced their transportation proceeded to reduce the number of distribu- from these distribution centers in each state tion centers, with the vision to utilize uni- with the exception of Victoria. form technology, therefore improving econ- omies of scale, avoiding duplication and fa- Information Systems cilitating quicker decision making (Maseeha In order to continuously improve the effi- et al. 2009). The downsizing meant that a ciency of Woolworths’ business, a cost sav- single point of contact would make the sup- ing initiative called ‘Project Refresh’ was ply chain easier to navigate. Woolworths launched in 1999; the aim was to deliver also transferred their promotions, pricing, cost efficiency systems through improve- range and shelf merchandising from state- ment in the Woolworths’ supply chain (Ra- based offices to a national office. jshekar and Gayatri 2004). Beginning from As part of the restructuring, Woolworths warehouses right through to transport and transferred their promotions, pricing, range replenishment systems, the project was and shelf merchandising from state-based aimed at reducing the cost of doing business offices to the national office. This new single by tying up loose ends in the supply chain. national buying system provided an opportu- Woolworths implemented demand and re- nity for all supplier contracts to be renewed plenishment planner software packages, to and deliver cost savings to Woolworths and help in forecasting the demands in various its suppliers. Rajshekar and Gayatri (2004) distribution centers across the country. As a found that Woolworths’ new system did in result the new software helped Woolworths fact, help achieve a significant reduction in reduce lead times, inventory cost, and to op- costs of supply chain and distribution. timize their inventory control while monitor- To move products quickly through the ing and managing supply chain effectively distribution centre, Woolworths imple- (ZDNET 2003). mented automation with advanced facilities Additionally, Woolworths invested an- to maximize the investment in inventory other AUD$1M into its supply chain for the (Masseeha 2009). An important point of col- EDI System (Electronic Data Interchange). laboration is to adhere to core competencies This system brought connectivity to the ex- 41 ISSN 2087-3735 Woolworths Australia and … (Verdi Arli) isting fragmented system of supply chain, Achievements and Lessons learnt at through an internet based stock ordering sys- Woolworths tem for all Woolworth’s retailers in the Woolworths established a competitive ad- country (Rajshekar and Gayatri 2004). As a vantage through a strategy of operational result the new e-commerce system signifi- efficiency. An advantage of Woolworths’ cantly reduced cost per order from buying power is the ability to strongly en- AUD$5.00 to 0.30 cents (Woolworths courage key suppliers into collaboration via 2008a). The system also promoted collabo- E-business. Woolworth’s shares information ration among key suppliers. to enable suppliers to manage in-store inven- tory and use EDI networks to consolidate Retail Strategy purchasing. Woolworths supply chain collaboration Woolworths learnt through practice that flowed all the way through to the online focusing on end-to-end supply chain issues shopping strategy. A portal aimed at provid- such as store supply chain cost, distribution ing a replica of the in-store shopping experi- centre location and numbers, distribution ence online. One of Woolworths’ online centre function, transport management, pro- shopping sites was Greengrocer.com.au cess improvement across the network and which sold mostly fresh and perishable common integrated systems, leads to con- foods. The online site was a strategic alli- tinuous improvement in operational effi- ance between Australia’s Greengrocer and ciency thus cost savings. Woolworths’ Homeshop (Rajshekar and Successful SCC at Woolworths led to Gayatri 2004). The strategy was to help the following achievements: Greengrocer in sourcing some of its goods Saving of approximately AUD$75M within from Woolworths and create a one-stop- the first two years of project commence- shop by selling other products available at ment; Woolworths online. Woolworths anticipated Reduction in lead time of getting point-of- benefiting from this alliance as Greengro- sale information from two weeks to every cer.com core competencies was their exper- Monday morning for the previous week; tise in online trading and they had a large Integration of information technology into customer base of 60,000. supply chain management; In 2003 Woolworths collaborated with Improvement in sales by AUD$7 billion. Caltex, to provide discounted fuel to its cus- Overall, Woolworths experienced a sav- tomers. The customers could receive a dis- ing of AUD$1.7 billion, which was stripped count of 4 cents on their purchase of petrol from the cost of doing business (Bar- after spending AUD$30 or more in a single tholomeusz 2003). Between 1999 and 2004, transaction at a Woolworth’s supermarket or Woolworths drove AUD$2.5 billion out of its Big W stores. This resulted in Wool- its supply chain by developing these collabo- worth’s ability to increase its market share rative relationships with suppliers (Muzink before any rivals entered that segment. The- 2004). Currently, Woolworths maintains this se two examples show how Woolworths strategy but is adapting via flexibility and used supply chain collaboration to reduce incorporating this into the supply chain. This cost for the business while simultaneously change is driven by changes in the Austra- attracting more customers. lian food industry arising from increasing By improving efficiencies across its globalization of food production and trends supply chain, collaboration with suppliers by in consumer preferences. Furthermore, the sharing information, requesting feedback to market is becoming more sophisticated and improve and by harnessing innovation, is paying more attention to the nutritional Woolworths and its key suppliers have value of meals as well as environmental is- achieved mutually beneficial results. sues.
42 Journal of Economics, Business, and Accountancy Ventura Volume 16, No. 1, April 2013, pages 27 – 46 Accreditation No. 80/DIKTI/Kep/2012
CONCLUSION, IMPLICATION, SUG- Australian Government Productivity Com- GESTION, AND LIMITATIONS mission, 2011, ‘Economic structure and The journey’s undertaken by both Walmart performance of the Australian retail in- US and Woolworths Australia to implement dustry’, Productivity Commission Is- Supply Chain Collaboration has enabled sues Paper, p. 1-47. these retailers to achieve greater organiza- Australian Retailers Association, n.d., ARA tional performance through driving common Policies + Policy Topic: Australian’s objectives in partnership with their supply Retail Sector, retrieved 9 May 2011, network. Collaborative partnerships, based
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Caniels, M, and Gelderman, C 2005, ‘Pur- ns-customer/11580143-1.html> chasing strategies I the Kraljic matrix – Fishman, C 2006, The Walmart effect: How A power and dependence perspective’. the World’s Most Powerful Company Journal of Purchasing and Supply Really Works – and How It’s Trans- Management, Vol. 11, pp. 141-155. forming the American Economy, New Chartered Institute of Purchasing and Supply, York Penguin Press, pp. 63-65. 2009, ‘The Seven Slides for the CEO’, Gonzalez, A 2011, ‘Unravelling the True retrieved 15 May, 2011, 44 Journal of Economics, Business, and Accountancy Ventura Volume 16, No. 1, April 2013, pages 27 – 46 Accreditation No. 80/DIKTI/Kep/2012 trieved 4 June 2011, 45 ISSN 2087-3735 Woolworths Australia and … (Verdi Arli) ence’, European Journal of Opera- upgrade/LKWVFHAQKZ.html>. tional Research, vol. 174, pp. 744-765. Woolworths, 2008a, ‘Woolworths limited cor- Spencer, S, & Kneebone, M 2007, FoodMap: porate responsibility report’, retrieved A comparative analysis of Australian 16 May 2011, 46