• Internal Code :
  • Subject Code : MPM792
  • University : Deakin University
  • Subject Name : Operations Managment

Introduction

Supply chain management encapsulates the flow of services and goods encompassing all the procedures that are required to transform the raw materials into the finished goods (Hugos, 2018). It incorporates diverse processes involving storage of the raw materials, work-in-process, inventory and transportation of the finished goods from the point of origin to consumption. Inventory management is a key process of supply chain management; it involves supervision of the non-capitalised assets, stock items and the inventory items.

It is imperative to effectively maintain and manage the inventory because it is helpful in preventing the stock-outs, ensuring accurate and precise recordkeeping and managing multiple locations (Mangan & Lalwani, 2016). For analysing the supply chain and the potential issues in supply chain especially in the inventory management Woolworths, Australia is considered. Since it is a retail giant which operates across different states and cities in the country, it is crucial for the firm to robustly administer the inventory. Inventory shrinkage is one of the critical issues that Woolworths has recently sustained. This assessment envisions laying prominence on the excessive shrinkage levels in Woolworths and analysing the possible reasons for the same and hence, recommending a valid set of recommendations for addressing the same.

Problem Analysis

Reviewing Literature

Being an integral element of the supply chain, it is essential that the inventory management procedure is effectively conducted and administered at regular intervals. Poor inventory management can lead to inefficiencies as the business may not be able to have accurate and real-time information about how much inventory it incorporates (Gallino, Moreno & Stamatopoulos, 2017). It increases the risks of mistakes in reordering the inventory from the suppliers or of taking orders of the inventory that does not exist with the firm. It can also result in supplier expediting an order and hence, hindering the profit margins of the business. Negative implications associated with ineffective inventory management involve disturbed margins on the sellable products and tax and other overhead implications.

Inventory management can also lead to fuming of conflicts between the vendor and customer relations; it can also result in diminishing productivity of the employees and ineffective decision making. Authors Sayed, Kamath & Sharma (2018) have stated that poor inventory management can result in decreased warehouse organisation. This is so because a lack in the fluidity of a system can result in cluttered storage space which makes working within the organisation quite ineffective.

Analysing Inventory Shrinkage Issue in Woolworths’ Supply Chain Management

Woolworths is an Australian chain of grocery stores and supermarkets. It manages some of Australia's most trusted and recognised brands and has become a household name in Australia in terms of grocery shopping (Haskins et al. 2020). In Australia, Woolworths has around 995 stores, it has different support offices and distribution centres for assisting the customers and providing them with superior service (Haskins et al. 2020). Being a firm with multiple operating locations, it is integral for it to have a close check on its inventory for efficacious operations. Effective management of the inventory can be helpful for Woolworths to automatically have a track of the orders and ensure that the stocks are in compliance with the orders and demand of the customers.

Being a renowned chain of retail stores in the country, it is quite imperative for it to ensure that the robust integration is done in the supply chain processes and especially in keeping a track of the inventory. Authors Nawaz, Hamid, Khurram & Nawaz (2016) have stated that poor inventory management can result in delayed shipping and deliveries of the orders which can ultimately impact the satisfaction of the customers. This is so because it becomes difficult in tracking the inventory results and can also cause burning out of the stock when may lead to an increment in delivery time, ultimately disappoint the consumers (Nawaz, Hamid, Khurram & Nawaz, 2016).

Woolworths recently incurred issue in its inventory management. There are several intricacies in the inventory management that involve inefficient processes, limited visibility, excessive competition, inability in centralising the essential data, lack of knowledge regarding inventory in creating customer demand, managing space and people, ineffectively tracking the inventory and many more. Woolworths specifically incurred the issue of inventory shrinkage which impacted its operations. Inventory shrinkage basically occurs in a firm when the amount of inventory listed in the accounting records is excessive as compared to the actually present inventory (Gallino, Moreno & Stamatopoulos, 2017). In the year 2016 Woolworths estimated that it incurred loss in inventory each year which was about 75 million every year. The most obvious consequence of inventory shrinkage is reflected in the revenue structure (Ramirez, 2019).

Inventory shrinkage results in loss of revenue of the business. Woolworths after sustaining this issue had fluctuating revenue. Not only in Woolworths, but inventory shrinkage is a key issue in the whole retail industry. The retail industry continuously incurs the issue in terms of the ineffective record of the inventory and record keeping. Woolworths estimated that most of the inventory shrinkage problems are aroused due to theft. The key reasons for the shrinkage in the inventory of Woolworths are the stock losses in the distribution centre, shoplifting within the stores and incorrect shipment deliveries.

The organisation stated that about 56 per cent of its inventory shrinkage occurred as a result of errors in the internal processes and due to the theft within the supply chain procedures. It stated that the other 44 per cent of the inventory shrinkage issues accounted for the shoplifting in the stores (Chaturvedi, 2016). This is closely related with the lack of visibility in the inventory management of the organisation due to which it becomes difficult to identify exactly where the shrinkage occurs and it is also complex for attributing this to the operational procedures and the stock losses.

It is also difficult for the firm to determine the losses in transit in the distribution centre or within the store. There is a need for Woolworths to addresses shrinkage issues and brings forward and enhances visibility in its supply chain especially in the procedures associated with inventory management. Woolworths has always offered its customers with eminent services and excellent values on the wide array of services and products. It ensures that the products are categorised into diverse assortments involving confectionery, kids, entertainment, home and many more (Chaturvedi, 2016). Despite these measures, it still witnesses inventory shrinkage issues which have been frequent in the firm and are an issue of major concern within the organisation that needs to be effectively dealt with.

Current Performance Analysis

External Benchmarking

Coles is a supermarket chain running in Australia in retailing and consumer services and is headquartered in Melbourne. It operates in the same industry as of Woolworths and has around 2500 retail outlets in the country (Haskins et al. 2020). It gives a tough competition to Woolworths in terms of providing a range of fresh food, general merchandise, groceries and fuel.

The supply chain of Coles is dedicated to delivering the great availability, value and freshness to the customers. It conducts around 17 million transactions per week, it works in a collaborative custom with the teams and suppliers and is dedicated to control and improve the way it does its activities related to delivering stock to its more than 2200 stores, forecasting orders and warehouse. Online sales show that stock control is done in an efficacious custom. Being the second-largest grocery store in the country, the supply chain of Coles needs to be effective; however, it is quite appalling.

The reason for the same is that it has judiciously higher prices for the basic groceries. After data from its 17 million customers who visited its 742 supermarkets and hundreds of the fuel outlets of the firm, the most of the complaints that it received were about the stock-outs of the items and fuel. Most of the customers reported that when they visited the stores they found that the products that they wanted to purchase were out of stock (Haskins et al. 2020). On referring to the customer reviews for products and services on product review website which is 'www.productreview.com’, most customers had complained about the stock out of the items. The strategies adopted by Coles to tackle with this issue were aggressive one and it realised that the problem is not only the inefficient supply chain strategy but it is in the inventory management.

It ensured the strengthening in collaboration with its partners by improving the data sharing with 60 of its major suppliers. It was an effort to eliminate the stock-outs and improve inventory management by reducing the inventory shrinkage. It further made use of data-driven internal control for investing in the information systems and improving the analytics and forecasting systems for keeping a close record of the inventory (Haskins et al. 2020). In comparison with the case of Coles, Woolworths has still not been able to effectively diminish the case of inventory shrinkage and also has a poorly constructed internal structure in terms of information systems and analytic tools. Since both the companies are the leading competitors in the retail industry, it is crucial for Woolworths to comprehend the significance of data-driven culture and robust strengthening of information systems for keeping a close track of the inventory and hence reduce inventory shrinkage.

Negative Implications of Inventory Shrinkage

Woolworths has established the standards of different activities involving manufacturing and retailing outlet and the quality of services provided by the staff. Displaying goods on the shelves, helping the customers in the outlet stores, engaging in an effective manner in customer interaction and inventory handling are some of the key tasks that Woolworths performs once the products are disseminated to the retailing stores. Due to inventory shrinkage, Woolworths is unable to meet the supply and demand of the customers in an effective manner. The inventory unavailability of the goods is impacted by the firm as it is unable to quantify its available goods and services. According to the retail studies, the increment in the availability of the inventory by around 1% can result in 0.25 to around 5 per cent elevation in the overall sales (Sunday & Joseph, 2017).

In the year 2018, there was significant disruption in the profit of Woolworths, the overall revenue of Woolworths in the year 2018 was around $969 million, however, the same in the year 2017 was $1.53 billion (Hepworth & Newman, 2019). The difference in the sales and revenue of the firm between these two years clearly brings forward a picture of disturbed inventory management of the Woolworths. The inventory levels of the organisation must be administered according to the seasonal cycles. Due to theft and ineffective record keeping of the inventory, the shrinkage has resulted in posing adversative impression on the customers of the firm. It is increasingly impacting the brand value and sales. It is also reflected in the other processes of the supply chain such as transportation to the retail stores and supplying to the customers.

Recommendations

Woolworths can effectively reduce inventory shrinkage and the associated negative implications by adopting a pilot project for defining the mandated scope in terms of distribution centres, vehicles, products and stores (Hepworth & Newman, 2019). It can also be helpful in keeping a close check of the warehouse and the stores. The organisation has previously adopted an RFID initiative; however, the same has not been effective in item-level tracking.

  • Double-check system

Woolworths can implement a double-check system; it is one of the most straightforward ways to prevent any sort of inaccuracies in inventory management and stocktake. It ensures that the individuals are appointed for checking the acceptable levels of inventory and signing off on the invoices for keeping an accurate record (Rana, Shanmugam & Hang, 2020). This is the most basic system that Woolworths can strengthen and strengthen so that any sort of glitches are pinpointed and rectification strategies can be easily implemented when inaccuracies are incurred in the supply chain management in terms of inventory record.

  • Assigning unique identities

Assigning the unique identities to the stock levels which are recorded is another key step that can strictly safeguard reducing inventory shrinkage. It is already employed by most of the retailing giants but assigning simple and clear product quotes can be further helpful in accommodating new products as per the requirements (Xu, Kamat & Menassa, 2017). Different software tools can be incorporated for keeping a close track of the product codes and the amount of inventory available.

  • Automating inventory

Human errors are one of the leading causes of inaccuracies in the inventory for retailing giant like Woolworths. It is imperative that the streamlining and organising of the stock is done with the help of dedicated inventory management software. It can be incorporated in the organisation so as to reduce the manual handling and processing of the stock and hence, cutting down the inventory shrinkage due to any sort of administrative issues (Xu, Kamat & Menassa, 2017).

  • Tracking shrinkage over time

Effective comparison of the recorded inventory with the total inventory is useful for calculating a percentage of shrinkage in the inventory. Ideally, the contrast between the recorded and actual inventory will reduce over time due to the refining of the inventory management techniques (Rana, Shanmugam & Hang, 2020). Software tools such as Unleashed, Ordoro POS integration, Veeqo and others can be employed.

  • Effective training curriculums for high demand

During the busy periods of the year, it is difficult for the staff to maintain the accurate track of the inventory due to high pressure and higher demand in the market. The returns and exchanges can further increase the speed; it is quite difficult to keep an accurate and precise record. It can also lead to inventory shrinkage; hence, it is critical for Woolworths to ensure that the staff is prepared for the peak sales period with the use of effective training interventions. Since inventory shrinkage in Woolworths is associated with employee theft, it is crucial for the company to effectively screen the candidates depending upon the business and the background. It is critical to train the employees so that they handle inventory in an effective custom (Knežević, Delić & Jurčević, 2016). Building loyalty among the employees is one of the crucial ways so as to conduct employee vetting. Proper incentives and appraisals can be provided to the inventory management team quarterly so that thefts of the inventory are reduced hence, diminishing the shrinkage of inventory.

Woolworths can overhaul at supply chain management by reviewing the existing distribution network for optimising it's capacity and e-commerce operations by relying on effective infrastructure and hence, taking care of large volumes of orders. The website is handled for managing around more than 200000 of products for sales; hence, it is imperative that the e-Commerce of the firm is strengthened. It requires a dedicated system for fulfilling the demands of the customers by ensuring the effective administration of the inventory. Woolworths can make sure that the inventory software installed encompasses different modules for forecasting, inventory optimisation, transportation life cycle, management, and planning and distribution management.

It needs to reengineer and reinforce its national redistribution centre to a significant degree so that the cases of theft are diminished. It needs to enhance its capacity in terms of cost reduction and delivering rate to refurbish the inventory distribution across the distribution centres. The organisation has adopted a metro transport model in Brisbane so that the inventory shrinkage due to delayed transportation and theft is reduced. However, it needs to be specifically designed in terms of reducing deployment of capacity planning, tracking of the freight and optimising the processes.

As a part of the new tactic for reducing inventory shrinkage, Woolworths can be recommended to ensure that barcodes are present on the individual items and on the tote boxes. This makes the tracking of the individual items quite easier and hence, ensuring effective inventory management (Xu, Kamat & Menassa, 2017). It needs to employ the long-ranged RFID devices for tracking the movements within the distribution centre. It is further helpful in tracking the movements of the inventory from the distribution centre to the retailing stores and hence, reducing the chances of theft. Effective integration of the vehicles and the GPS systems needs to be incorporated and simultaneously monitored by a team so that a proper routing of the inventory is done. A Wireless Area Network (WAN) needs to be used for transmitting the data to the control systems for proper assembly and distribution functions of the offerings (Xu, Kamat & Menassa, 2017).

High-density retrieval system can be implemented in the automated robots for the stock merchandise stored in the plastic totes. Since it requires no manual intervention, it can be used for the high-value items. A pick-to-light system can be used for small items destined for different stores; this can result in around 99 per cent accuracy in the system. In this, the workers are guided visually by the lights. The high-value items of the tote can be shrink-wrapped so as to discourage inappreciable activities like theft (Su, Lee, Hsu & Fu, 2019). The key benefits of the system are the fact that there is better visibility of the inventory and accuracy in the stock book. The reduced labour costs due to the automated inventory verification processes can reduce the manual updating of the records of the stock (Su, Lee, Hsu & Fu, 2019). This is also helpful in proper asset management and hence, bringing transparency in the whereabouts.

Conclusion

This assessment has brought forward a clear picture of the inventory management issue in the inventory shrinkage in Woolworths. Supply chain management incorporates active streamlining of the supply-side activities of the business for maximizing the customer value and attaining a competitive edge in the market. This assessment has discussed the issue of inventory shrinkage in the firm which has resulted in hindering revenue and customer satisfaction. It is evident from the assessment that Woolworths’ loss in inventory each year was about 75 million. The most obvious consequence of inventory shrinkage is reflected in the profits. Its current inventory control tactics are inefficient in handling the same.

Due to theft and ineffective record keeping of the inventory, the shrinkage has posed a negative impression on the customers of the firm. The proposed recommendations involve double-checking method, automated inventory method, assigning unique identified, integrating GPS and information system to allow the control panel to track the inventory. It can be helpful in proper asset management. Another tactic is ensuring that the high-value items are shrink-wrapped and effective training of the employees is done to elevate loyalty.

References

Chaturvedi, P. (2016). Rethinking the value chain. MHD Supply Chain Solutions, 46(2), 52.

Dai, H., Li, J., Yan, N., & Zhou, W. (2016). Bullwhip effect and supply chain costs with low-and high-quality information on inventory shrinkage. European Journal of Operational Research, 250(2), 457-469.

Gallino, S., Moreno, A., & Stamatopoulos, I. (2017). Channel integration, sales dispersion, and inventory management. Management Science, 63(9), 2813-2831.

Haskins, B., Nehme, Z., Cameron, P., Bernard, S., Parker‐Stebbing, L., & Smith, K. (2020). Coles and Woolworths have installed public access defibrillators in all their stores: It is time other Australian businesses followed their lead. Emergency Medicine Australasia, 32(1), 166-168.

Hepworth, K., & Newman, F. (2019). Trade Unions v. Social Audits: Addressing Labour Exploitation in Woolworths Domestic Food Supply Chain. Hum. Rts. Defender, 28, 14.

Hugos, M. H. (2018). Essentials of supply chain management. Hoboken: John Wiley & Sons.

Knežević, B., Delić, M., & Jurčević, M. (2016). Detecting and preventing employees’theft in retail. Trade Perspectives 2016 Safety, Security, Privacy And Loyalty Perspektive Trgovine 2016. Sigurnost, Privatnost I Lojalnost, 90.

Mangan, J., & Lalwani, C. C. (2016). Global logistics and supply chain management. Hoboken: John Wiley & Sons.

Nawaz, A., Hamid, K., Khurram, M. U., & Nawaz, M. A. (2016). Impact of Inventory Performance on Industrial Financial Performance of Pakistan. International Journal of Multidisciplinary Approach and Studies, 3(6), 32-14.

Ramirez, M. (2019). Sustainable product service systems: cases from oceania. Designing Sustainability For All, 233.

Rana, M. E., Shanmugam, K., & Hang, C. Y. (2020). Recommendations for Implementing an IoT based Inventory Tracking and Monitoring System. International Journal of Psychosocial Rehabilitation, 24(05).

Sayed, S., Kamath, A., & Sharma, A. (2018). U.S. Patent Application No. 15/359,854.

Su, T. S., Lee, S. S., Hsu, W. H., & Fu, S. H. (2019). A fuzzy-based approach to improve the human pick-to-light efficiency incorporated with robots behavior in an intelligent distribution center. Procedia Manufacturing, 38, 776-783.

Sunday, O., & Joseph, E. E. (2017). Inventory Management and SMEs Profitability. A Study of Furniture Manufacturing, Wholesale and Eatery Industry in Delta State, Nigeria. Journal of Finance, 5(3), 75-79.

Xu, L., Kamat, V. R., & Menassa, C. C. (2017). Automatic Barcode Extraction for Efficient Large-Scale Inventory Management. In Computing in Civil Engineering 2017, 340-348.

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