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The current study has been conducted to find out different operational and supply chain related aspects of Wesfarmer Australia. The report has identified relevant sustainability aspects of the organisation’s current supply chain operations. In doing so, the background of the company has been analysed in terms of its financial, operational and other aspects. The current operations management and supply chain practices have been of the organisation has been discussed. The extent of sustainability and the capacity of the organisation to maintain operational harmony in the face of unforeseeable global issue such as Covid-19 have also been analysed.
Table of Contents
“Descriptive profile of chosen business organization”.
“Description of the current operations management and supply chain practices of the business organization”
“Sustainable practices in organization’s operations management and supply chain”.
“Resilience of the operations and supply chain practices of Wesfarmers organization to future disruptive events”.
Proper management structure in operation and supply chain helps an organization to successfully plan the objectives, analyse the resources and manage logistics for raw materials and finished goods. The daily activities can be organised easily that improves overall productivity, profitability and customer services. The present report analyses the business nature, commodities and financial performance of Conglomerate Company of Australia, Wesfarmers. The operation management and supply chain management processes of this organisation are evaluated here based on their performance before Covid-19. Effects of global disruptive events on the company supply chain and operations are discussed here to help the company for gaining sustainable advantage.
Wesfarmers is an Australian conglomerate which has its headquarters in Perth, Australia. It predominantly deals with retail, fertilizers, chemical, coal mining as well as industrial safety products. This is the largest colony in Australia by revenue and it was founded as a co-operative for providing services and merchandising to the farmers of Western Australia. It is the largest private entity in Australia with 220,000 employees (Wesfarmers.com.au., 2020).
It acts as merchandise for Western Australian farmers. The top competitors of Wesfarmers are Woolworths, Myer, HS Home, Incitec Pivot, AECI, Mamma Chia, Dusk, Warrior, Imdex, DuluxGroup, Enaex, Walmart and Costco. The level of competition is high in Australian market but as it is a company with high revenue, the company has high market share. Wesfarmers Chemicals, Energy &Fertilisers (WesCEF) has ammonium nitrate and ammonia production facilities in Australia with 50% of QNP ammonium nitrate production in the suburbs of Queensland. The company also possesses a stake of 75% in Australian Gold Reagents which is a manufacturer of sodium cyanide, one of the most utilized chemicals in the gold industry.
The target customers for Wesfarmers are the farmers who are in urgent need of fertilizers which enhances the yielding quality of the requisite crops. In this manner, they have been able to earn the trust of several farmers and agricultural production units in Australia. The company also provides retail services and the target customers for retail are grocery and lifestyle product shoppers who seek convenience. The businesses that look for variety and discounts in products areprovided by Wesfarmers. In the mining industry, the target customers are the local mining companies who do not have resources for mining but have probable knowledge regarding the areas of mining.
The Revenue Of the company is 131.66 billion AUD as of the 2019 data. The company has earned net profit after tax (NPAT) of $1,210 million in the last quarter of 2019. In 2020 it has enhanced by 5.7% to $1,142million. The dividend per share of the company has been AUD 2.78 which includes AUD 1 as a special dividend (Wesfarmers.com.au, 2020). In 2019, the company has had a free cash flow of AUD 2963 million. The net asset valuation of the company in 2019 has been AUD 18,333 million and the equivalent shareholders equity has been 9971 million AUD. The return on capital deployed for Wesfarmers has been 50.5%(Wesfarmers.com.au, 2020).
Operation management refers to an administration of business practices that ensures effective transformation from raw materials to finished goods and successful delivery to the customers. Day-to-day management, design of goods, contributes improvement of the goods, processes and services are included in the operations management that is beneficial for increasing company efficiency, quality of goods and reducing costs of operations (Kanget al., 2016). Wesfarmers operate diverse business operations such as apparel and general merchandise, office suppliers, outdoor living and home improvement products, chemicals, energy and fertilisers along with safety and industry products. Corporate governance is maintained as Wesfarmers applies robust corporate governance policies of “ASX Corporate Governance Council's Corporate Governance Principles “and implements sustainable policies to minimize environment and community impact.
Primary objectives of value-creating strategies of Wesfarmers operations are strengthening business through operating excellence and satisfying customer needs, securing growth opportunities and renewing the portfolio through value-adding transactions. The board members of the company are responsible for reviewing business operations, developing plans for long-term value creation for the stakeholders through portfolio management. In 2018, the board members have approved sale of Wesfarmers’ 40 per cent interest in the Joint Venture with Bengalla for $860 million that has helped the company in $679 million of pre-tax gain in 2019. Alongside, 13.2% interest selling in Quadrant Energy is approached with pre-tax gain on disposal of US$98 million (Wesfarmers.com.au, 2020). The board members also monitor the cash flow performance, financial position and key metrics like credit rating to improve the operating efficiency. Risk management framework reduces risk in options and ensures safety performance in the business.
Value chain is used to determine the operation and supply chain managing processes of Wesfarmers and it helps the company to get a clear visualisation for their services that can create values, attract and retain customers to this organization. Six-sigma model is used to control the quality of an organisational operation in order to reduce waste, limit errors and ensure customer-centric approach in the operations with systematic and scientific manner. DMAIC or Define, measure, analyse, improve and control process is used for analysing the problems and resolve the issues in operation management through six sigma. Resource dependence theory is also effective for supply chain and operation management because it can help an organization to search external and internal resources to develop organizational behaviour (Cuervo‐Cazurraet al., 2019). Wesfarmers has taken strategic and tactical management and deals with the foreign suppliers for increasing quality of trade deals that have increased to $1,940 million in 2019 from $1,197 million in 2018.
Supply chain management (SCM) is designed as the procedure of maintaining flow of products and services as well as distribution of the products to the customers (Bozarth and Handfield, 2016). Supply chain management is a part of the operation management that also fulfils the inventory, capacity and quality management to ensure speedy and error-free services for gaining customer satisfaction. Wesfarmers conduct planning, demand forecasting, distribution and order fulfilment services in the retail business. The company has more than 14,500 suppliers and supply cost is $29.6 billion (Sustainability.wesfarmers.com.au, 2020). Supplies of paper products and timber products are certified to the Forest Stewardship Council (FSC). The company provides supplies to Kmart, Officeworks and Bunnings businesses on the basis of “Business Council of Australia Supplier Payment Code”.
Green life supplier conducts are followed by the company at the time of hiring labourers and sourcing raw materials. Capacity building in the supply chain management reduces risks of the mean and agricultural supply chain of this organization that is beneficial for the company to increase customer trust. Real-time supply chain is maintained by them and it has been identified that the company has created plans to build automated ambient distribution centres and modernize the supply chain of its supermarket giant, Coles that can reduce costs of its distribution centre and cut jobs. As per the company expectations it can reduce up to $130 million in capital expenditure in five years (Johnston and Johnston, 2020). The company uses PrimeRevenue’s supply chain that works with capital financial technology and has paid $500 million to reduce costs, risk and utilise resources and capital more efficiently.
Sustainable operation management refers to the set of concepts and skills that allows a company to manage and structure its business operations to obtain return on capital assets without sacrificing stakeholder needs. Agile and adaptive operation and supply chain helps an organization to balance the society, profit and environment. It helps the commoners to maintain the existing practices without risking the future resources. Wesfarmers follow sustainable corporate practices to ensure financial success by addressing a range of issues that influence financial outcomes. The company focuses on providing a safe workplace and creating opportunities for the employees to increase job performance. Alongside, the company has an inclusive work culture created by the company with specific attention to gender diversity and inclusion of “Aboriginal and Torres Strait Islander” people. It helps the organization to promote diversity and there is a 24% increment of Indigenous employees in Wesfarmers (Sustainability.wesfarmers.com.au, 2020). It has also been noticed that 54% of the employees of this organization are women and there is a 5% enhancement in women in management roles.
The sustainable working practices has reduced total recordable injury by 15% and the company focuses on sustainable supply chain and validate the work practices with 4,000 factories under audit program. The company has also made community contributions of $86.6 million by focusing on upgrading society and climate change resilience to protect the environment. Green and sustainable resources are used by Wesfarmers for providing fertilisers to Australian farmers. The regulations of “Fair Work Commission '' is maintained to engage 90% of employees with the organisation and “Equal Employment Opportunity Policy '' is used to increase employee standards (Sustainability.wesfarmers.com.au, 2020).
Triple bottom line theory is followed by the company to maintain sustainability in operations because this theory provides detailed processes of balancing people, process and plant in business. As mentioned by Hammer and Pivo (2017), this theory suggests an organization to focus on social and environmental concerns that are beneficial for increasing profits. The company initiates safety working policy for the employees and distributed $9.3 billion in wages and benefits to the employees with 64% of permanent employment. It has made the voluntary turnover rate for permanent employees 15% in 2018. Wesfarmers is one of the top 10 taxpayers in Australia that pays more than $2.1 billion in taxes and royalties. There is %15.7 billion value creation for the community.
Shadow carbon price is used by Wesfarmers and makes investment in the “Carbon Disclosure Project” to reduce environmental wastes. The company has increased recycling of their wastes by 6% in 2018 as well as uses sustainable packaging to maintain environmental balance and reduce pollution.
Ethical codes in supply chain and distribution create a strong and collaborative relationship with the supplier that enhances supply chain capabilities and quality customer delivery. The company invested $47 billion for their supplies and has donated $1 million to Farmer’s fund to support the suppliers. Sustainable timber and paper sourcing are used by Wesfarmers along with sustainable fertilisers for the welfare of the society. “Supplier Ethical Data Exchange (SEDEX)” is used by the company to streamline the ethical compliances as well as monitor the efficiencies of the suppliers (Sustainability.wesfarmers.com.au, 2020). Direct supply base of the subsidiary of Wesfarmers, Bunnings has been increased by 4.3% through its “Ethical Sourcing Program”. Ethical sourcing audit programs engage the suppliers with the company supply chain to maintain good communication and diverse supply chains in Wesfarmers.
Agency theory of supply chain management is based on the principles that are utilized to analyse and resolve issues in the relationship between the agency and company principals (Panda and Leepsa, 2017). The suppliers can identify the business principles and act independently to increase capacity of the business. As Wesfarmers focuses on corporate governance, it helps the company to change the rules for the agents to operate and restore interests of principal. It ensures strong communication between the stakeholders of Wesfarmers that is beneficial for reducing inefficiencies and financial loss.
However, it is identified that reduction in gross waste disposal and water uses in the organisation create challenges for the growth of the business. Complex supply chain, lack of automated maintenance in supply chain, weather delays, foreign exchange hedging losses and fall in coal prices creates issues in the company operations and the company has faced restructuring loss of $50min 2018. The company has failed to reduce carbon emission that has become one of the biggest sustainability issues for Wesfarmers. Therefore, it is recommended for Wesfarmers to go to “zero waste” principles by following “5R strategy” such as refuse, reduce, recycle, reuse and rot and take initiatives towards climate change. Moreover, full control over the inventory is necessary to reduce waste in the supply chain and it is required for them along with recycling products to resolve sustainability issues in supply and operations of Wesfarmers.
The Wesfarmers group’s retail sales have been observed to be in line with the first half of the financial years since the start of the calendar year. A strong sales growth has been observed to be continued in Bunnings, Kmart and Officeworksdepending on the online sales. Interestingly, Bunnings and Officeworks have performed well in providing customers with critical commercial and retail products that helps inresponding to the Covid-19 situation. The product designing and supply chin operations of Wesfarmers are versatile in nature. Apart from that, it has already been identified that the company has an effective international distribution network including agents and agreements with the countries across the world (Rizouet al. 2020).
The Covid-19 pandemic situation as led to deterioration of the world economy and it is likely that the customers are attracted mostly on the products that are provided at a low price. The versatility of the products, use PrimeRevenue’s supply chain with capital financial technology and has reduced costs, risk and utilise resources and capital more efficiently. This provides resilience to the organisation to maintain a high sales rate even at the time of unforseen global ramifications. This provides opportunity to the current organisation for selling quality products at a lower cost. Apart from that the versatility of the products has made them important and essential to the customers (Rowan and Laffey, 2020).
The company has planned to build automated ambient distribution centres based on which the supply chain operations could be modernised and the increasing global demand for essential portative clothing, medical products, hygiene products, cleaning and medical gases can be adequately met by the organisation.Wesfarmers applies ASX Corporate Governance Council's Corporate Governance Principles in their governance of their own organisation. The sustainable policies this organisation has made might lead to minimise their impact upon the community such as lack of protective measure taken while delivering the products may take place.
The company board members are responsible for reviewing the business plans and they develop tactic for making products with long-term value creation. It can be stated that the board members are required to constantly evaluate the current operations of the company and its impact in the current pandemic situation (Craigheadet al. 2020). However, if any disruptive global situation arrives, the effective chain of network can be used along with the trustworthy relationship with the farmers or the suppliers and distribution can be maintained.
Wesfarmers is capable of providing diverse range of products to satisfy different needs of the customers. However, the lack of foresight of the company to the pandemic situation lead to situational disruption in the operation and supply chain management of the company as the product choices, essentiality and demand has changed and are being specified to the safety and health needs (Verbeke, 2020). However, the presence of effective monitoring capacity of the board members of the cash flow performance, financial position and key metrics like credit rating to enhanced the operating efficiency. Therefore, it can be stated that the board resilience to any unforeseeable situation is required to be kept to an optimised level from where sudden changes in the operations and management can be effectively handled.
It can be stated that Wesfarmers have an effective management capacity that fulfils the inventory, management of quality and capacity that ensurescustomer satisfaction by providing error free and speedy services. In addition to this, Wesfarmers is also focused on the health and safety of its employees as the employees are the main source of productivity. Wesfarmers have developed highly protective and performance enhancing (Gehrieet al. 2020). Therefore, it can be stated that the employees can also play an important role within the company during pandemic situation like Covid-19 based on the safety process maintained within the organisation and protecting the health of the employees.
In conclusion, it can be stated that Wesfarmers is a large Australian retail organisation operating as an effective retail product supplier along with home and lifestyle products. It procures products from the Australian farmers and has developed a trustworthy relationship based on the effective supply chain management operations. Customers are also provided with opportunity to convenient shopping increasing satisfaction of the customers. In order make the governance activities effective to the company’s current situation; the board maintains policies of ASX Corporate Governance Council's Corporate Governance Principles. The supply chain management has made in a way that it can maintain the flow of products even in any unforeseeable situation. The operations of the company can also be considered as fit for the society, the planet and their profit earning. It has also been found that it has adequate supply chain management and operational qualities that will help the organisation in perform well in any unforeseeable global situation.
In order to recommend the current organisation for taking strategic operational stance the Hill’s Strategy Development Framework will be used in the current section (Fosteret al. 2017). In order to meet the customer demands and maintain profitability of the organisation, it requires developing some objectives to follow in global ramifications. Here, the objectives of Wesfarmers will be economic sustainability of economic survival, social welfare and maintaining returns on investments.
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