operations
supply chain
Woolworths supply chain operates a centralised distribution model covering all inbound logistics, the central distribution centres and our transport operations, as well as deliveries to stores. This centralised model is the core platform for supporting Woolworths ongoing growth.
Woolworths centralised distribution model provides clear competitive advantage – simplifying distribution for suppliers (a single drop or pick up), simplifying deliveries to stores (again a single drop), lowering the cost to operate and improving our control of the key aspects of logistics, for example, the cold chain, ultimately ensuring that our product quality is of a consistently high standard. The model enables Woolworths supply chain to deliver and sustain cost-effective availability of a wider product range in different store types across broad geographic locations (for example, full-line stores, food stand-alones and Engen Food Stop convenience stores).
Last year, we reported that our focus for 2006 would be the investment in additional capacity to cope with the growth. We have invested more than R500m in capacity building for the future, including the construction of the new, consolidated distribution facility in Midrand, Gauteng. This project started in June 2005 and is on track for completion in February 2007, and is a state of the art multi-functional facility which will consolidate five distribution facilities in Gauteng and enable management, labour and transport synergies.
The development has been consistently reviewed against world-wide best-practice to minimise the environmental impact of both the development and related logistics operations. (Note: further detail on this can be found in the separate Sustainability report.)
The distribution centre is the largest of the capacity building initiatives in the supply chain introduced to enable us cope with our rapid growth, and was complemented by an addition of 10 700m2 to the Cape Town and Durban’s distribution facilities which came on line during the year.
The total distribution units handled through Woolworths distribution centres grew rapidly for the second successive year and resources in all distribution centres were expanded to cope with this growth.
Supply chain management have focused on the end-to-end optimisation of the cost to supply and this focus is delivering results. Good productivity gains in labour and transport enabled Woolworths to reduce the distribution cost per unit in food despite the 33% increase in the cost of fuel in the past year.
As Woolworths growth strategy demands the roll-out of new trading formats, new sourcing locations and new product types, so the supply chain and logistics operations are continually reviewed in order to provide the necessary support.
The most significant operational challenge of the year was the 55 day national strike experienced by the Woolworths distribution team over the peak trade period in December. Service levels were maintained throughout the strike and customers’ needs were fully met during this critical trading period.
| Woolworths supply chain volumes | |||||
| % | % | ||||
| 2004 | 2005 | change | 2006 | change | |
| Food | |||||
| Total distribution units in foods | |||||
| including franchise (millions) | 38.2 | 44.1 | 15.4 | 54.2 | 22.9 |
| Clothing and home | |||||
| Total distribution units in | |||||
| clothing and home (millions) | 4.2 | 4.7 | 11.9 | 5.4 | 14.9 |
2007 focus
The focus areas for the year ahead will be to bring on line the Midrand distribution centre in early 2007, to enable an effective and efficient import capability for all product types, and to lead an integrated project to improve availability across all product types and store locations. Environmental efficiencies and a focus on the social aspects of this new work environment remain key drivers of this programme.
Planning has commenced for investment to increase capacity in Cape Town and Durban.
information technology
The operations systems team effectively managed another year of an aggressive roll-out programme of system renewal and simplification, and are well into implementation of the fifth year of change – change which has affected every aspect of the organisation. Capital investment in systems renewal will exceed R500m by the completion of the current programme at the end of the 2007 year.
Change has been a key feature of the information technology transformation programme and the most critical aspect of this programme has been the management of change in the organisation as employees are introduced to new processes, technology and systems and, in many instances, are required to develop new skills. Overall, excellent progress has been made with relatively little disruption to everyday operations – there has been good acceptance and implementation of the changes throughout the business.
Business benefits from the renewal of systems in the past year included improved forecasting in both food and clothing, an improved infrastructure to support the business information technology requirements into the future and the introduction of new technologies which enable us to provide an improved service to our customers. In line with this focus, the call centre support technology has been improved, new technology has been introduced to support the loyalty offering and a new and improved point-of-sale system has had an impact on customers’ check-out process.
2007 focus
This year will see the final roll-out of Woolworths systems’ replacement programme with a key focus on minimising potential operational disruptions. With the roll-out complete, the focus will shift to maximising operational efficiencies and returns out of the renewed systems architecture, with special attention to providing management information which helps to address customer-facing issues such as availability.
