Operations Management Initiatives at Woolworth’s

Table of Contents

Introduction. 3

Principles of Operations Management 4

Theory of Constraints (TOC) 4

Process Technology Strategy. 5

Capacity Management 7

Organisation and systems development 8

Planning and Control 10

Lean Production. 11

Performance and improvement strategy. 12

Supplier development strategy. 15

Conclusion. 17

Bibliography. 19

Introduction

Woolworths Limited is one of the most recognisable brands in retailing in Australia and it serves several millions of customers In Australia and New Zealand every day. The retailing expertise of Woolworths ranges from food & Grocery, general merchandise, consumer electronics, petrol.

The company structure of Woolworths needs to be analysed before we identify the best Operations Management principles for Woolworths. The principle followed by Woolworths is  Coordinated Contraction where in there is a Primary Contractor , which is Woolworths in this case and a Sub-contractors for example textile factories, food and beverages manufacturer, soap factories etc. The sub-contracts are being given contract for a certain job in Woolworths. Specific instructions and specifications regarding production of various goods are being given to these sub-contractors by Woolworths. In some cases Woolworths even takes the responsibility of making available the raw materials and also takes the responsibility of planning and controlling of the sub-contractor. Mostly the sun-contractors make available their equipments and tools which are specifically required for trade or profession. Some of the elements of exchange which exist can be seen from the figure 1 below:

Figure 1: Elements of Exchange (Pycraft, 2008)

In order to find the best operations management principles for Woolworths we need to basically focus on two main points:

Usually Woolworth believes in sub-contracting, but there is an exception that it has its own meat-factory, which is owned and controlled by Woolworths. This meat factory forms a crucial part of Operations and Logistics. The main purpose of building this factory was to eliminate inconvenience being caused by in-store butcheries and to eliminate the waste by reduction of inventory build up.

• Woolworths believes in sub-contracting to all its suppliers so it does not have any manufacturing plant except for the meat-factory. Thus we need to find an operations management for the whole supply chain as well as the meat factory.

Woolworth does not buy its stock from the open market rather it believes in buying the stock from its suppliers who are producing products mainly for Woolworths only. This helps in developing a long-term relationship between Woolworths and its suppliers. The competitive advantage which Woolworths gets over other retailers is because of the excellent quality of goods which it ensures by giving its suppliers proper training, staff and quality inspectors of Woolworths work in factories of suppliers.

While unpacking of goods strict quality checks are being done so that the best quality only reaches the retail floor. All the poor quality merchandise is being returned to the supplier. For effective strategic planning Woolworth’s main focus is on waste reduction.

Principles of Operations Management

Theory of Constraints (TOC)

 This theory basically focuses on managing constraints and the main area of spotlight in TOC is system constraints. Some of the main steps which are applications guidelines for the proper implementation of TOC are:

Identify Constraints

1.  Exploit Constraints
2. Subordinate Processes
3.  Elevate Constraints
4.  Repeat Cycle

The weak link present in the system is being concentrated upon because with the help of this process the whole system gets constrained and it should be optimised for enhanced productivity. The retail industry is the one which gets and can derive maximum benefits from TOC. The figure 2 below depicts the whole cycle of flow and all the steps of theory of Constraint

Figure 2: Lifecycle of TOC source: http://www.leanproduction.com/images/five-focusing-steps.gif

Process Technology Strategy

 Woolworths has identified that to be successful in business of retailing they need to be process-oriented in their approach which will help it in future development as well as enhancing its current operations. In order to fulfil this motive as completely dedicated Process Design team has been established by Woolworths Limited in 2008. The main aim of the Process Design team not just to develop the Business Process Management capabilities and an effective process upgrading methodology for the organization.

 ARIS platform has been used for central process repository in Woolworths and the main modelling tools which have been used are ARIS Business Designer and ARIS Business Architect. Using the Event-Driven Process Chain (EPC) modelling approach comprehensive and intuitive process modelling has been made possible at Woolworths. Some of the key initial Business Process Management (BPM) initiatives which were developed and added by Woolworths are:

• Methodology: Guidelines and conventions along with robust approach developed to carry out process activities in BPOM projects implemented at Woolworths Limited.
•  Internal Training: Initial Training material developed by Leonardo Consulting for enhancing process improvement and process modelling has been inculcated in the Woolworths curriculum which is being taught to the staff.
• Communication: The business is being engaged by Process Design team to communicate the benefits of process approach as well as process-centric organization to the project.
• Governance: It has been established for accuracy, relevance and  consistency of  process related material
• Process Centred Benchmarking
•  Process Improvement Methodology
• Capture and Reuse: Process Intellectual property has been captured and reused which helps in faster execution of project.

Thus the Process technology Strategy developed at Woolworths is very well managed as it successfully helps in developing process framework in many key areas. This has been helpful in scoping of several projects at Woolworths Limited. It also helps in achieving good amount of understanding of the context of project, which processes of project will be affected and additionally helps in identifying the stakeholders which would be involved in the project (Nagel, n.d.).

The layout technology in operations management at Woolworths also took a step ahead. Woolworths Ltd. Which is operational in Australia as the largest supermarket chain completed two continuous trials of radio frequency identification. One of the trials  was done by employing technology for  tracking and tracing  fresh produce  as it moved in the supply chain while the another trail helped in monitoring the levels of temperature which are required during the various segments of supply chain. The retail giant mainly chose the  UHR EPC  Gen 2 tags which were installed at  specific  supplier distribution centres and  supermarkets in order to determine whether they are economically viable or not. The benefits which Woolworths was looking for included improvements in efficiency for tracking fresh produce which was at that time done manually and mainly it was paper based process. It wanted electronics and faster way of tracking fresh food so that it could reduce inaccuracies in its accounts, reduce the use of paper an d  enhance its documentation process.

 Electronic tracking in such big retail stores like Woolworths helps in reduction of stock wastage as it provides better visibility to the products along with better control too over the stock. In fresh produce industry knowing the exact location of the particular stock at the right time is very vital. The reason being some of the foods do not last longer and if an accurate stock control is maintained the company can ship the fruits before they spoil thus reduce wastage.

Temperature sensing trails were also done with UHF EPC Gen 2 tags which had built-in sensors in order to monitor the temperature of the stock so that it is ensured that the produce is kept at optimum required temperature, this helps in avoiding spoilage (Friedlos, 2008)

Capacity Management

In case of organization management, managing of organizational capacity is considered to be most underestimated activity which results in poor performance. The capacity of any organization is supposed to be its capability to perform any work. Capacity management consists of management of the amount whatever nay organization has and it utilises to perform any work (Yu-Lee, 2002). Thus an organization like Woolworths also uses its spaces as warehouses, production facilities, and offices and in many other ways to house the work that is required to be done (Blokdijk and Menken, 2008).

 In case of capacity management people or labour do the tasks which are associated with completion of work. The equipments in the organization perform the tasks  which are either not possible for human beings to do  or which are more efficient if done by automated machines like robots can work in much more hazardous environment than human beings. The computer technology of the organization like in Woolworths facilitates analysis along with quick decision- making which needs the information which has been collected or created.

Woolworths has also implemented a new supply chain management system at a main depot to help it in handling the high number of valued orders which are small which are mostly processed through its website called Woolworths.co.uk (King, 2007). Woolworth decided to overhaul its supply chain management after reviewing the existing distribution network of the company. They concluded that the optimisation of fulfilment capability of its e-commerce operations was relying on the specific kind of infrastructure which is capable of taking care of large volumes of orders. Woolworth’s website contains more than 200,000 products for sale and many of these orders were of small value items.

 Therefore to fulfil these small orders for items it needed a dedicated system. Therefore to manage the inventory software has been installed at Woolworths which contains modules for planning, forecasting,   order lifecycle management, inventory optimisation, distribution management and transportation lifecycle management.

Woolworth has completed its re-engineering of eth National Redistribution Centre to a substantial amount at its centre located in Mulgrave. This has resulted in enhanced capacity, cost reduction and pick rate to improve effectively. The refurbishment of its two automated sites located at Minchinbury and Hume has been completed which will improve and extend the life of these distribution centres. It has also completed its  Metro Transport Model and Brisbane became live in the financial year 2011 which gives Woolworths an ownership of trailers which have been specially designed for them and this way it gets the industry leading deployment of  capacity planning,  freight tracking systems and  optimisation at Woolworths (Unsupported source type (Report) for source Lus11.).

 Woolworths online now has the capacity to serve more than 85% of population in Australia geographically. They are planning to launch a new platform with enhanced capabilities. Project Refresh Intellectual Properties has been implemented across all the business for better capacity management. Re-engineering of Mulgrave national Distribution Centre has resulted in improving the efficiency, enhancement of capacity and cost reduction at Woolworths. This is the best way of Capacity management which has been used by Woolworths Limited.

Organisation and systems development

Materials Requirements Planning (MRP) is one of the essential factors which help in organization and systems development. It is mainly dependent upon demand. The main aim of MRP is to develop a method for scheduling the whole process in terms of like when the right time to order any product is and what is the right quantity that should be ordered. Data is needed and being used for forecasting the whole process. There are two ways for ordering the products they can be ordered using economic order quantity (EOQ) or lot-4-lot. In case of assembly operations MRP is a very useful and valuable technique. The figure below depicts the whole MRP process.

Figure 3: Material Requirement Planning

 For MRP implementation at Woolworths it needs to follow the Theory of Scheduling which can be implemented following the applications guidelines or steps listed below:

1. Determination of Assembly Sequence
2. Checking the Inventory Records
3. Forecasting the Requirements
4. Determination of the Schedule
5.  Controlling

 While implementing MRP the main focus should be on  the production sequence which will help it in finding the right time when the stock of the product is needed and how much it is required. Some of the assumptions which are made while implementing MRP are that we assume that demand of any product or service is dependent and the lot size of the product required is determinable and the last assumption is that for implementation of MRP we would need computer software. Then we will have:

• Primary Effect:  Ideal Ordering Schedule
• Secondary effect:  Minimised Inventory

Determination of ideal Lot Size

Proper Assembly Schedule

However there are some criticism also attached with MRP that is it needs significant amount of computation and thousands of detailed schedules are needed.

Planning and Control

Woolworths Limited at present is the biggest retailer which has charted great growth records and the credit goes to the proper planning and control being implemented at the Operations management of Woolworths. The 4 major operational  excellences which are maintained at Woolworths and which are responsible for its great success are : product ,  customer intimacy,  strong online presence an d huge overall network which comes through proper planning and control only . Proper planning and Controlling in Woolworths can be achieved through proper implementation of MRP which will act as the best way to overcome all the glitches.

Lean Production

Lean Production or Lean Manufacturing is the phenomenon which is entirely based upon the theory of waste removal and its main focus is on system flow and it basically follows five basic steps (Dennis and Shook, 2007). The steps followed for Lean Production are:

1. Identification of the features which create value
2.  Identification of Value Stream
3.  Making all the activities to flow smoothly.
4. Let the customer demand the pull product through the system.
5.  Try to perfect the whole Process.

The term ‘Lean’ has been derived from the old Japanese term or technique of manufacturing and it involves in (Miller and Côté, 2012):

Step 1: Specification of the value and the exact need of the customer by keeping in mind that we need to define the value in the terms of not just specific products but also capabilities which should be offered at specific prices by making specific dialogues with the customer (Moore and Scheinpkof, 1998). Therefore we need to eliminate the products which do not have the market and also the features of the products should be eliminated which are not needed.

 Step 2: Determining the proper sequence of activities for the production of the product and along with that eliminating the wasteful processes which are not needed. Means the the processes which are used for features of products which have been discarded in step 1. While keeping the essential activities which are adding value to the product. Determine the impact on the entire process of the non value adding activities and try to reduce such kind of activities.

 Step 3:  Improving the flow of activities through optimisation. And the interruptions in the flow of the product should be kept bare minimum. Thus Lean Manufacturing uses the process of cell manufacturing and is supposed to be very product specific.

Step 4:  Work on the basis of customer pull which means company should produce the product when it is make-to-order thus making the product available only when customer demands for it.

 Step 5: Continuous improvement in the entire process is needed. It can be done by eliminating the non-value added activities and try to repeat the processes if need be.

It has been found that the result of Lean Production is usually high quality products because the risk of the product getting damaged is reduced a lot because the product spends much lesser time in getting processed. Simplification of the whole process also reduces the manufacturing cost of the product.

 Some of the assumptions which are made while implementing Lean Production are that the waste removal will definitely help in improvement of the business performance and numerous small improvements are much better than simply doing system analysis. Implementation of lean Production in organizations will have following effects:

• Primary Effects: reduction in the flow time.
• Secondary Effects: Minimised variation

 No Variation in output means uniform.

Less amount of Inventory

New Accounting system

Enhanced and improved quality

 Flow-performance measure for managers (Nave, 2002)

Performance and improvement strategy

Strategy seems to be vital or integral part for improvement of any activity in any organization. Strategy is more about locating specific product through positioning of the products in the particular markets (Baxter and Macleod, 2008). For performance and improvement of any organization proper and successful strategies need to be formulated. The best technique which can be used for enhancing the performance and improvement of organization can be based upon the Theory of variation reduction (Rodriguez, 2008). This is what is the approach of Six Sigma which is entirely based upon Theory of variation reductions and its main focal point is the problems existing in the organization.

 In order to develop performance and improvement strategy (Rothwell and Dubois, 1998)using the statistics the expected outcome is a process is being forecasted. In the Six Sigma technique the variation of multiple elements is being reduced the entire process is being improved and enhanced. There are five steps which are being followed and ar4e listed below:

1. Define
2.  Measure
3. Analyse
4. Improve
5. Control

Step1:  The definition of the process is being given while considering the customer needs. The customer needs are taken into consideration while defining the process because they play vital role in determination of the main features as well as the processes.

 Step 2:  the process needs to be measured as accurately as it can be. For the measurement of the process the data is being collected, key characteristics of the process are being classified and the confirmation of measurement systems is being done.

Step 3: The data analysis is being done in order to extract useful information. This will help in finding out where the main problem is and what is the problem.

Step 4:  Then the steps for improvements are being framed by finding the solutions to the problems which have been identified. Finally the implementation of these solutions is required. Try to determine if these solutions are implemented whether they would be beneficial for the organization or not.

Step 5: Monitoring and controlling the whole process on continuous basis is very vital in the end.

 Figure 4: Steps in Six Sigma

TCS applies the Six Sigma principles in order to streamline the IT processes of Woolworths Ltd. Since the role of IT in every organizations becoming very strategic the internal IT functions of the retail giants like Woolworths need to fiction in efficient manner so that the true value can be delivered to the business. Thus there is vital need of providing optimised processes in order to deliver services to the business users. If the IT delivery processes would be inefficient it will result in rework, higher IT Costs an d cost escalations of processes. That is why realising the need to improve its efficiency through the improvement of its IT functions Woolworths embarked on a program called Six Sigma in order to streamline its processes. This will directly help Woolworths in delivering value to their business as they would be better equipped.

Woolworths limited is Australia’s as well as New Zealand’s largest retail group which has an annual sale of  more than $42.4 billion and more than 3000 stores and has staff base of  1,75,000 employees. The five major divisions of Woolworths are:

• Super Markets
•  General merchandise
• Consumer Electronics
• Petrol and
•  Liquor

The Super Markets is the largest division. It is a very large retailer and is very much customer-centric in approach and along with that it is very quality conscious too. Thus to add enough value to their business and to retain their leadership position they planned to implement performance and improvement strategy through IT. Thus TCS was being engaged by Woolworths to implement various process improvement programs through six sigma. TCS through its expertise in Six Sigma Methodologies implemented Gurukul which assisted Woolworths in developing competency on Six Sigma (TCS Applies Six Sigma Principles to Streamline Woolworth’s IT Processes, 2008).

Another major benefit attached with Six Sigma implementation would be it would reduce the operational cost at Woolworths Ltd. Along with the operational overheads which will give it a competitive edge over its rivals. Implementation of Six Sigma in the organization has given significant business results to Woolworths like there has been substantial cost savings (TCS Applies Six Sigma Principles to Streamline Woolworth’s IT Processes, 2008).

Supplier development strategy

Supplier Development involves the methodology of doing work with specific supplier on a one-on-one basis so as to improve their performance for the advantage of the organization. Supplier Development Strategy is very closely related to supplier relationship management. It is being developed because it has following benefits attached with it:

• Cost Reduction
•  Improvement of supplier performance
• Resolution of very serious quality related issues
•  Development of fresh and new routes for supply
•  To enhance the business alignment between the buying organizational and the supplier
•  To generate competition for a high priced product or service which already dominates the market
•  Creation of product or service which is not available in the market

Thus supplier development entails involvement of the expertise of the supplier and along with that alignment of the buying organizations business needs or vice versa. However the objective of supplier development could be very minor like very less adjustments at the staff level or very substantial appraisals and along with that relaunching of the total range of the critical products involved (Supplier Development, n.d.).

Supplier development strategy involves formal moves by the buying organization to integrate the supplier into their product as well as the process design. This makes the involvement of the suppliers practically in the purchasing decisions of the organization. This helps in developing strong amount of external focus on the customer which has customer oriented measurements which are being used for checking performance and identifying the areas of improvement in the process (Monczka et al., 2010).

 Purchasing plays a vital roles in the strategic contribution in any organization and is the main part in the organizational structure too thus joint product development is laid much emphasis these days which helps in getting a competitive advantage and the total cost for the product is also reduced. These days that why organizations are requiring better performance from their suppliers and they are taking aggressive steps to improve the efficiency and capability of their suppliers by accelerating the rate of improvement of the suppliers. Some examples of aggressive actions are full service suppliers, global supplier capabilities and the entire supply chain is taken as an integrated system. This involves very close and mutual cooperation between suppliers and organization and sometime direct intervention as Woolworths does. It directly gets involved in the operations and systems of the suppliers.

 That is why the big retail chains or supermarkets  like Woolworths follow and implement suppler development strategy because they are committed to enhance the quality continuously of the products they are selling to be competitive in the market. This commitment is being used in their advertisements too. Woolworths also works very closely with its suppliers all through its buying process and it does so by not just doing the evaluation of the goods on its own but the factories, delivery system and the farms of the suppliers are also being evaluated by Woolworths.

 Woolworths agree on establishing the standards with the suppliers for all the services and products aspects. They also reserve the right to reject and return the deliveries which do not meet their standards. But in this situation pricing is a critical issue because there exists a very strong competition amongst the supermarkets and chains stores. Therefore there is always a pressure on the suppliers to reduce the cost of the products.

 According to the supplier development strategy the supermarkets should try to develop an idea of ‘partnership between the supplier and the buyers so that it could be beneficial for all the parties in the long-term. They should follow the seven stages of supplier development which are:

• Making a commitment at senior management level  towards supplier development
•  Auditing and Evaluation of the internal Standards of organization
•  Defining and Quantifying the  necessary or the required changes
•  Developing an agreement with the Chosen Suppliers
• Formation of joint teams and  development of training programs if required
•  Teams should define the specific  objectives, deliverables and timescales
•  Implementation of changes and Monitoring the impacts (Beckford, 2002)

Conclusion

 In case of Woolworths the main objective is to produce and offer their customers products which have exceptional quality and at the same time it needs to keep the cost of the products as low as it can to attract huge number of customers towards them. Since Woolworths mainly sources its products from it’s dedicates suppliers it does not have a typical or rather proper production system or production unit where it produces the goods. The Principles of Operations Management can be basically applied to any system however the most common system where the operations management is applicable is the manufacturing system for example a factory which Woolworths does not have.

 Thus in case of Woolworth the story is totally different as they do not have a single manufacturing unit except for meat-factory. Therefore Woolworths is mainly seen as a huge distribution system where the main focus is on logistics. The main operation which exists in Woolworths is supply chain so it mainly requires supply chain management where the main work done is shipping of the products or goods form the supplier to the buyer which in this case is the Woolworths stores. In logistics the main focus is on inventory, packaging, quality, scheduling, inspection etc.

 The main operational plan and the strategy which is being followed at Woolworths is to save money as much as it can without compromising on quality because making available the quality products is what gives them competitive advantage in the market. Considering all these factors and discussing all the principles of operations management it has been found that Woolworths is implementing most of the principles of operations management however the best implemented are the Process  technology Strategy where it has implemented the  layout technology  along with process design in best possible manner. But the Lean Production and the MRP needs to be implemented in much better manner at Woolworths.

At the same time the Supplier Development Strategy, Performance and improvement strategy is the key features based on which it has gained competitive edge on its rivals in the market. So it needs to implement Lean Manufacturing or Distribution in the best possible manner incorporating Just-in-time and six sigma in it (Zylstra, 2005). However with the help of TCS it has inculcated Six Sigma in the organization in very effective manner.

 In next decade the operations management wool become much more positive towards supplier development strategy rather being just customer focussed. The performance and improvement strategy would also be more focussed towards making more environment friendly efforts. The factors which encourage Operations management to change are the achievement of goals, cost reduction, reduction of waste, making the distribution network flow smoother, increasing the overall productivity and elimination of problematic areas existing within the distribution network.

• The competitive dynamics will change due to changes in socio-economic factors and the changes in the policies of the government. Along with this the expectations of customers will also change to great extent.
• There would be changes in marketplace, so the organizations will have to tune their operations through operations management to handle these competitive priorities.
•  The organisations should be ready with operations strategy as these changes will keep on occurring several times.
•  The competitive priorities of the organizations will also change to great extent (Mahadevan, 2010).

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