According to Christopher (2016), supply chain management is the process of managing the flow of services and products those involves storage as well as movement of raw materials, inventory for the particular product. Supply chain management or SCM is also involved in the aspect of moving complete products from point of origin to point of consumption. The concept of supply chain management is also related to the competitive advantage of the company itself. For the successful business operation of a company, supply chain should be effectively managed by the organization because this process involves the formation of finished goods from raw materials. With the effect of globalization, the needs have been changed for every company. There is immense level of competition in every aspect of an organization. Supply chain management is another growing challenge for every company.
This research report discusses contemporary supply chain issue of Woolworth’s organization. Woolworths is one of the retail supermarket giants of Australia. It encompasses many suppliers within the business operation. Economic crisis is the major issue for operating effective supply chain in the business sector. Woolworths is a vast chain of retail. It has also discussed supply chain management issue related to Woolworths. This report has also discussed relationship commitment with the logistics and outsourcing aspect of Woolworths in the Australian retail industry. This report discusses reason behind current issue of the loss of market share of Woolworths. This supermarket is struggling with the aspect of gross profit margin. Woolworths is facing immense competition in the competitive supermarket industry of Australia.
Source: Created by author
Retailers are the intermediaries between the consumers and the producers. Efficient retailers are very important in order to ensure that the customers have access to a wide range of goods and services at the best prices. Retailers not only sell goods but also assist the customers in making better choices and making them aware of the new products in the market. The changes in the technology, competition and behavioral patterns of customers have reshaped the retail industry in Australia (Price, Bailey and Pyman 2014). The mindset of consumers has become more self-centric. There are about 140000 and above retail businesses in Australia. The retail industry also makes a significant contribution to the economic growth of the country. The retail sector directly and indirectly contributes around 8% of total economic activities. It has also created more than 1.25 million jobs opportunities in Australia. The retail industry in Australia makes around 43% of the total household consumptions (Burch, and Lawrence 2013).
The retail industry comprises of a number of diverse sectors that have different characteristics. It comprises of various departmental stores and speciality stores such as clothing, electronic goods, furniture, food and many more. The growth rate of the retail industry showed a downward trend in the past two decades due to long-term structural changes in the Australian economy. The main reason for the downward trend of retail industry was that consumers were spending more on services such as financial services, property, education and travel. However, with the popularity of retail sector and increase in the disposal income of the increasing population, the retail industry witnessed an upward trend. The food and grocery retailing has been a major part of the retail industry. Barriers to entry and barriers to exist also have a great impact on the retail industry. The rate of entry has been 13.4% and the rate of exit has been 15.8% in the Australian retail industry (Sutton-Brady, Kamvounias and Taylor 2015). New entrants in the market have resulted in an increase in the level of competition. The changes in the technology and the advancement of online businesses have lowered the barriers to entry and have increased the level of competition (Al-Khouri 2014).
The level of competition faced by the Australian retailers from online retailers depends upon the nature of goods. Internet has changed the essence of traditional retail sector by enabling customers compare price and features of thousands of products from hundreds of retailers around the globe. The customers no longer depend upon the advertisements and product tests to know about the launch of a new product. They get to know about the products over the internet and go through the customer reviews in order to decide whether to buy a product or not (Balaji and Roy 2017). Along with this, globalization has also increased the competition, as now the Australian retailers not only face domestic competition but also competition from other countries.
The turnover of retail sector in Australia is around $8.1 billion per month. Woolworths and Coles remain the dominant retailers in Australian market. Aldi has also shown a good growth while IGA and other smaller stores are falling behind. It has been seen that most of the customers buy from supermarkets while only 3% customers buy groceries online (Akbar and Ahsan 2014).
Woolworths Limited is an Australian based company, which is into extensive retail business throughout Australia and New Zealand. Percy Christmas, Stanley Chatterton, Cecil Scott Waine, George Creed and Ernest Williams founded it on September 22, 1924. It has its headquarters in Bella Vista, New South Wales, Australia. It opened its first store, the Woolworths Stupendous Bargain Basement, in Sydney on December 5,1924. The new Woolworths was the first variety store in the world to use cash registers that printed receipts for the customers. It brought a revolutionary shopping experience with its self-service stores (Arli et al. 2013). During the late 1920’s, the company witnessed growth with a second store being set up in Sydney as well as stores in Perth and Brisbane. At this point of time, the company officially became a ‘chain’. Further, it grew in 1930’s and had established 23 stores by the end of 1933. This was the time when the company started giving its advertisements over radio along with the newspaper advertisements. However, World War II slowed the growth of the company in Australia. Post war, the company again showed a rapid growth as it opened its 200th store in Canberra in 1955. The company opened its own Quality Assurance Laboratory in order to ensure the quality of its products. The main operations of Woolworths include supermarkets, liquor retailing, hotels, pubs and departmental stores. Woolworths acquired Roelf Vos and Purity in 1982, which was named as Woolworths in 2000. It also took over Safeway Australia in 1985, which was renamed as Woolworths in 2008 (Woolworthsgroup.com.au 2017).
Figure: Logo Woolworths
(Source: Woolworthsgroup.com.au 2017)
Various reports have shown that the biggest retailer of Australia, Woolworths had many issues with its suppliers.
The second issue was that the suppliers received bills that claimed that they have been charging the supermarket wrong amount and have been supplying incorrect quantity of goods.
According to the recent report of newspaper, it has been seen that Woolworths has reported a loss of $1.235 billion and 40.8 % decline in the earning status of Woolworths. The level of rivalry has increased a lot with Wesfarmers (https://www.news.com.au 2017).
Thirdly, Woolworths has also been accused of intimidating suppliers into paying millions of dollars for funding a discount war. There are four main challenges of Woolworths which can be the reasons of losing market share. This supermarket giant has shown issues like slowing growth of market, market discounting, weak staff morale (suppliers) and entry of Aldi (https://www.abc.net.au 2017).
Fourthly, an allegation on Woolworths was put forward that it has been seeking payment of around $60 million from its suppliers in order to reduce the shortfall in its expected profits by blackmailing the suppliers (Arli et al. 2013).
Lastly, Woolworths was alleged of taking advantage of its strong bargaining position and also exerting undue pressure on its suppliers.
The conduct of Woolworths was said to be inconsistent with the norms in the community as well as the supermarket industry as the shortfall in the profits of Woolworths was not the fault of the suppliers. The fear that Woolworths would change its purchasing habits based on the level of support it gets, made the suppliers cough up the amount. However, the amount that was sought from the suppliers was arbitrary. Woolworths did not make any allowance for its own responsibility for the shortfall in its profits and its poor performance.
Another issue that made the suppliers furious was that Woolworths decided to pay its suppliers within 60 days while it demanded its own debtors to pay them within 30 days. This kind of disruption is highly damaging for any small business. Woolworths was putting their suppliers at the risk of closure just because it was unable to pay its bills (Akbar and Ahsan 2014).. This caused stress among the suppliers as they were paid very late. On the contrary, the company was very strict with its debtors in terms of the deadline of payment. However, the reason given by Woolworths was that it had taken this step in order to simplify its internal processes.
Later on in 2015, Woolworths attempted to win back the affection of its suppliers after the satisfaction ratings with its supplier fell down to the worst levels. Woolworths also denied any wrongdoings. It stated that it regularly engages its suppliers in its decision-making processes regarding the different level of supports that the suppliers may provide to the company. Woolworths also asserted that they did not make any unreasonable demand (Spillan and Ling 2015). It is very necessary to maintain good relations with the suppliers because they are the ones who provide a business with goods and services. Supplier relationship management (SCM) is a major area in which a company must become good. Good relationship with the suppliers can have a long-term benefit for businesses. Strategic approach can be very effective in developing mutual relationship between a company and its suppliers by finding effective ways of communication in resolving issues (Bhakoo, Singh and Chia 2015).
At times problems like damaged goods or delayed shipment can be easily solved if a company has good relations with its suppliers. Good relations with suppliers ensure timely delivery of right materials, which helps a company in avoiding any unexpected cost. Since it is a two-way process, the companies must do some favours to its suppliers such as settling bills on time, allotting the suppliers enough time for placing orders and ensuring proper communication with them (Brandenburg et al. 2014). An effective supplier development is necessary to improve the capabilities and performance of the suppliers as a healthy relationship between the customer and the supplier ensures the success of an enterprise (Bailey et al. 2015).
Engagement of stakeholders and building relationships with them are always an integral part for any business concern. Stakeholder relationship involves maintaining relationships with customers, suppliers, shareholders and employees. The major problems were faced by the suppliers during this crisis as Woolworths was putting their suppliers at the risk of closure. Woolworths had been seeking payment of around millions from its suppliers in order to reduce the shortfall in its expected profits by blackmailing the suppliers. They were the people who were adversely affected during its issues with the suppliers. There are many ways by which this problem can be tackled. Firstly, it should be proactive. Addressing the issues as soon as they arrive prevents it from getting more complex (Flax, Bick and Abratt 2016).
Proper discussion and action at the time of arrival of a problem helps in building trust and respect. Secondly, regular and effective communication is very necessary in avoiding confusions. An effective communication helps in avoiding disagreements. Thirdly, it is very important to clearly mention the roles and responsibilities of the parties involved. Fourthly, it is necessary to behave honestly and ethically all times (Stadtler 2015). Behaving ethically helps in establishing sound relationships with the suppliers. This helps in developing trust between the company and the suppliers. Fifthly, it is very important to regularly review the performances, identify the risks and monitor them. The contract managers must ensure that the goods and services received by them meet all the expected standards. Review of performance is also very necessary for further improvements. The company and the suppliers must work together in order to ensure that the risks are easily identified at all levels of business operations (Monczka et al. 2015). The companies are also required to be fair and reasonable with the suppliers in order to develop strong, reliable and cost-effective long-term relationship with its suppliers. Good contract relationship is very necessary to ensure the contract managers, service-takers and shareholders that the suppliers are delivering what they have been paid for. In order to ensure smooth functioning of the business, Woolworths is required to share its objective plans with the suppliers. Proper communication is the key to the successful relationship between the company and the suppliers (Wisner, Tan and Leong 2014). Recognition of the significant suppliers and awarding them accordingly shall also help in improving the relationships. Every supplier makes mistakes at some point of time but blaming them and complaining shall not be fruitful. Instead, the company must help the suppliers in solving their problems. Being friends with the suppliers shall provide easy access to products that have low availability and help in earning better prices.
Figure: Theoretical background of Supply Chain Management
(Source: Govindan et al. 2014)
In the early years, the industrialists emphasized more on implementation of mechanics to improve the labor-intensive process of material handling and transportation. In the mid 1990’s the National Council of Physical Distribution was formed keeping in mind the joint consideration of material handling, warehousing and transportation. However, the emergence of computers opened huge opportunities in logistics planning as data recording and transactions were maintained electronically. Therefore, in the late 1990’s a vast change in logistics provided more opening for supply chain management in industries. Therefore, according to the higher hierarchy of the business organisations, supply chain management and logistics was the most significant area of improvement for progressing in business (Govindan et al. 2014).
As discussed by Rostamzadeh et al. (2015), upon recognition of such essential requirement for development in the industrial sector, the scenario of world business changed extensively in the early 1980’s. The industrial sector was influenced greatly by changes in terms of technology, globalization, competition and business strategies. Six major developments were noticed while evolution of SCM and implementing it within industries. The creation era involved the large-scale change in industries along with engineering and strategies to reduce cost. The term SCM was highly popularized after the publication of the book Introduction to Supply Chain Management among the people. Followed by the creation era was the integration era that enabled the industries to emphasis more on SCM and implementing it within the business for meeting up with the increasing demand of the customers and sustain in the competitive market (Stadtler 2015) .
Next came the globalization era that influenced greatly functioning and operation of supply chain management. The industries focused on the latest development at a global scale that included establishing positive relationship with the suppliers thereby, expanding the chain of supplies internationally. However, the global sources of supply chain management were incorporated in business in the 1980’s. The main characteristics of this era were to consider globalization while managing SCM with the aim of increasing competitive advantage along with reducing cost. This required the industries to emphasis more on the core competencies of business thereby, manufacturing along with distribution of the products to the customers nationally and internationally (Touboulic and Walker 2015).
The history of supply chain management can be traced with the emergence of textile industries that requires purchasing of raw materials and delivering the ultimate product to the customers. In order to fulfill the requirement and to cope up with the increasing demand, the quick response strategy evolved. The concept highlighted the working in partnership of the retailers and the suppliers to meet the demands of the consumers. The main concept of supply chain management involves all the activities associated with the flow and transformation of goods from raw materials to from the business organisations or industries to the end users or customers (Mena, Humphries and Choi 2013).
The supply chain includes are wide range of networks starting from the supplier, manufacturer, assembly, distribution and the logistics of the product. According to a popular saying, SCM involves serving quality products to the customers thereby, increasing the value for the customers. Moreover, the concept of supply chain management enables the business organisations to design, manufacture and deliver the product to the customers. Before the use of the term SCM, the terms operation management and logistics were widely used. However, the concept logistics and SCM differs greatly. Logistics is defined as the set of activities conducted by business organisations within the boundary of a single organisation. However, the concept of SCM is much wider and globalised. The concept of SCM highlights the involvement of different companies that work in partnership and coordinately the deliver the product in the market (Ross 2013).
Figure: Related work of Supply Chain Management
(Source: Touboulic and Walker 2015)
As discussed above, the concept of SCM enables to design, manufacture and delivering the product to the customers. An example of the concept is the clothes or food we consume. Based on the local and global demand of the customers, the activities and strategies undertaken by the business organisation to design, manufacture, market and deliver the product to the customers is defined as SCM. The range of activities involve the suppliers, raw materials, manufacturing, finance, strategies and the way of marketing the product to maximize the sale. SCM provides an opportunity of developing a deeper understanding in managing various activities required to conduct the flow of services and products effectively to the customers. Therefore, Tian Govindan and Zhu (2014) stated that the throughput is increased and the operating expense or the inventory is reduced. An effective implementation of SCM reduces the rate of uncertainty throughout the chain thereby, managing the level of inventory properly. Moreover, having an organized way of working since the beginning and managing the various operations in a coordinated way minimize any delays thereby, eliminating the probabilities of unplanned activities. Furthermore, high quality product is delivered to the customers by ensuring high customer satisfaction and service. The supply chain of the business organisation is operated locally and internationally making it long supply chains at certain instances. Therefore, having cross border supply chain management is difficult to manage at times due to customs, politics and tax (Seuring 2013).
The supply chain management enables the business organisations to plan strategically to make their product reach the market and the potential customers thereby, providing them the opportunity to sustain and thrive in the competitive marker. Based on the type of the business organisation, it is categorized under the suitable type of SCM. Apart from the suppliers and the manufacturers, SCM includes warehouse, transporter, customers and retailers. Improper implementation of SCM results in failure of delivering the product in the end thereby, reducing the customer value of the business organization (Govindan et al. 2014).
As defined by Dekker et al. (2013), supply chain management is the combination of the entire process of designing, manufacturing and delivering the product to the customers to add value. As supply chain management is a combined process of the various functions and the operations therefore, it is not the responsibility of a single person. Within a business organization, different employees are responsible for different roles distributed according to their strengths. Therefore, doing business using the strengths of the individuals associated with the organisation makes the supply chain more effective. For example, SCM can be referred as baseball. However, all the participants are regarded as baseball players; each of them has separate responsibilities. Therefore, the players have to perform the duties assigned to them. A similar concept works for the employees of the business organisation associated with SCM (Heizer and Barry 2013).
Figure: Supply Chain Management Features
(Source: Mena, Humphries and Choi 2013)
The basic concept of supply chain highlights the process of supplying the raw requirements of customers in an organized and coordinated manner. Developing an efficient supply chain requires improvement for both the internal operating system and the services provided to the customers simultaneously. The supply chain of a business organization requires taking proper action in specific fields such as production, inventory, location, transportation and information (Wisner, Tan and Leong 2014). These are the core competencies that business organisation needs to follow to implement supply chain effectively. Production enables the business organisations to evaluate the market need of a particular product followed by the time by when the production has to be completed. This includes strategizing the production schedule that includes the workload capacity, the warehouse capacity, maintenance of equipments and the quality control. This also provides an opportunity for the business organisation to evaluate the demands and the expectations of the customers along with the strategies implemented by similar business organisations (Schönsleben 2016).
Supplier Chain management (SCM) is a major area in which a company must become good. Good relationship with the suppliers can have a long-term benefit for businesses. Strategic approach can be very effective in developing mutual relationship between a company and its suppliers by finding effective ways of communication in resolving issues (Bhakoo, Singh and Chia 2015). At times problems like damaged goods or delayed shipment can be easily solved if a company has good relations with its suppliers. Therefore, Woolworths must try to maintain friendly relationships with its suppliers.
Good relations with suppliers ensure timely delivery of right materials, which helps a company in avoiding any unexpected cost. Since it is a two-way process, the companies must do some favours to its suppliers such as settling bills on time, allotting the suppliers enough time for placing orders and ensuring proper communication with them (Brandenburg et al. 2014). An effective supplier development is necessary to improve the capabilities and performance of the suppliers as a healthy relationship between the customer and the supplier ensures the success of an enterprise (Bailey et al. 2015). Therefore, Woolworths must ensure proper communication with their suppliers.
The stakeholders affected by the above problems are the shareholders, suppliers, customers, employees, service providers, franchisees, certain government departments, unions and media. Engagement of stakeholders and building relationships with them are always an integral part for any business concern. Stakeholder relationship involves maintaining relationships with customers, suppliers, shareholders and employees.
The major problems were faced by the suppliers during this crisis as Woolworths was putting their suppliers at the risk of closure. Woolworths had been seeking payment of around millions from its suppliers in order to reduce the shortfall in its expected profits by blackmailing the suppliers. The suppliers were the people who were adversely affected during its issues with the suppliers.
There are many ways by which this problem can be tackled.
Firstly, Proactiveness is necessary. Addressing the issues as soon as they arrive prevents it from getting more complex (Flax, Bick and Abratt 2016). Proper discussion and action at the time of arrival of a problem helps in building trust and respect.
Secondly, regular and effective communication is very necessary in avoiding confusions. An effective communication helps in avoiding disagreements.
Thirdly, it is very important to clearly mention the roles and responsibilities of the parties involved.
Fourthly, it is necessary to behave honestly and ethically all times (Stadtler 2015). Behaving ethically helps in establishing sound relationships with the suppliers. This helps in developing trust between the company and the suppliers.
Fifthly, it is very important to regularly review the performances, identify the risks and monitor them. The contract managers must ensure that the goods and services received by them meet all the expected standards. Review of performance is also very necessary for further improvements. The company and the suppliers must work together in order to ensure that the risks are easily identified at all levels of business operations (Monczka et al. 2015).
Sixthly, the companies are also required to be fair and reasonable with the suppliers in order to develop strong, reliable and cost-effective long-term relationship with its suppliers. Good contract relationship is very necessary to ensure the contract managers, service-takers and shareholders that the suppliers are delivering what they have been paid for. In order to ensure smooth functioning of the business, Woolworths is required to share its objective plans with the suppliers. Proper communication is the key to the successful relationship between the company and the suppliers (Wisner, Tan and Leong 2014).
Lastly, recognition of the significant suppliers and awarding them accordingly shall also help in improving the relationships. Every supplier makes mistakes at some point of time but blaming them and complaining shall not be fruitful. Instead, the company must help the suppliers in solving their problems. Being friends with the suppliers shall provide easy access to products that have low availability and help in earning better prices.
Conclusion:
From the analysis, it can be stated that supply chain is a crucial aspect for managing successful business operation of the organization. In the contemporary society, cost, personalization and profitability are the major sources of challenges for supply chain management within global level. Woolworths needs to implement more effective supply chain management to compete in global market. It can enhance its market share by incorporating proper process of supply chain. Woolworths needs to maintain proper relationship with every stakeholder. Supply chain managers are the effective stakeholders of a company. Therefore, Woolworths needs to be more proactive while maintaining proper aspect of supply chain management.
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