Chain Management & Quality Assurance Management Functions

What is Supply Chain Management?

Supply chain management is the process of creating products for customers.  It spans from raw materials procurement, to manufacturing, distribution, logistics, warehousing, and product sales.  Supply chains exist in both service and manufacturing organizations, although the complexity of the chain may vary greatly from industry to industry and firm to firm.  An entire supply chain could exist within a single company.  For instance, Coles Myer’s supply chain has a workforce of about 5000 employees, spread across Melbourne-based Head Office and 19 Coles Myer-owned Distribution Centers throughout Australia.  Or a supply chain can span multiple enterprises (including manufacturers, suppliers, distributors, carriers, retailers and vendors) before it reaches a customer.  In simple term, supply chain management means managing a portfolio of assets and relationships to transform raw material into finished goods for consumers in the most efficient manner in order to achieve operating synergy.  The result is a product and service that are high quality, low-cost, and delivered quickly to the marketplace. (1)  A supply chain essentially has three basic components, the supply, manufacturing and distribution:

• The supply side concentrates on how, where from and when raw materials are procured and supplied to manufacturing.

• Manufacturing converts these raw materials to finished products and
• Distribution ensures that these finished products reach the final customers through a network of distributors, warehouses and retailers.

The Business of Supply Chain Management

The supply chain field has grown in shape, depth, and use over the past several decades. (2)  Coles Myer Limited is Australia's biggest retail group with a broad range of over 1,900 outlets in Australia and New Zealand, ranging from supermarkets and department stores to office supply shops and liquor stores.  The number of Coles Myer’s chains of retail outlets, including Myer, Grace Brothers, Coles Supermarkets, K-market and Target with the latter launched as a discount shopping centre in 1969 featuring a wide variety of merchandise including toys, fashions, home-wares, electrical appliances and confectionary.  In the business of supply chain management, most companies do not have one chain.  They have many, and several of them are actually networks. (3)   

As a leading retail giant in Australia, Coles Myer needs to focus on supply chain efficiency in order to bolster profit, and most important of all, to overtake its main rival, Woolworths.  In supply chain management, Coles Myer as well as its retail outlets such as Target is a great example of where the company is one great example that leverages the scale of the group through better systems to improve on-shelf availability for customers, improved technology to simplify processes and reduce costs, streamlined deliveries into stores and through a more efficient distribution network.  

In 2003, Coles Myer Limited’s revamp its supply chain management which was just an example of following the footsteps of United Kingdoms supermarket chain Tesco.  As Coles Myer’s Chief Executive Officer Mr. John Fletcher said in September 2003, the company aimed to raise profit to 800 million dollars a year by 2006 after investing 604 million dollars over the next five years to improve computer system, revamp or close inefficient distribution centre and restock shelves faster.  The first phase of the revamp is on information technology focusing on the company’s food and liquor operations.  The second phase is on non-food supply chain including Target using an automated sore ordering system to replace the systems that are mote than 15 years old.  By introducing electronic trading between suppliers, distribution centre and stores, it helps move Cole Myer’s towards a paperless system.

The Transfer of Information in Supply Chain Management

Coles Myer understands that customers’ satisfaction (and dissatisfaction) is linked to the performance of its supply chain. (4)  Supply chain management is both a source of competitive advantage as well as a lever for profit margin.  If a company is not good at supply chain management, other companies will be.  As Mr. John Fletcher of Coles Myer said in September 2003 that it was terrible that Australia could actually have two big retailers (Coles Myer and Woolworths) moved down a path at similar time frames on overhauling its supply chain.  The various components of supply chain management for Coles Myer can best be summarized as follows:

• Receipting – actual receipting of goods from the supplier any of the Coles Myer Limited Distribution Centre facilities irrespective of brand
• Processing – the movement of the goods around the Coles Myer Limited Distribution Centre facility to either “warehouse” them or place in the out bound lanes for delivery to stores
• Transfer – taking the goods from the out bound lanes and despatching them to the stores
• Freight management – managing the fleet of carriers that are deliver the goods between the various Coles Myer Limited Distribution Centre facilities or to the stores irrespective of brand
• Forecasting – predicting the volumes to be processed over the next six months
• Channel management – determining the optimum delivery path for the goods.  This generally relates to which Coles Myer Limited Distribution Centre facility will process the goods.
• Handling cost per carton/bag – determining the actual cost versus the budgeted cost for “handling” each and every carton or bag processed via the Coles Myer Limited Distribution Centre facility
• Resource planning – determining the actual cost versus the budgeted cost for each shift to process the goods in the Coles Myer Limited Distribution Centre facility
• Local and overseas suppliers/freight forwarders – all aspects of the supply are being and have to be reviewed.

Understanding the power of electronic trading, Coles Myer started a trial of using radio tagging technology in its stores nationwide in May 2004, and it is the first of its type in Australia.  The use of electronic system to analyze sales trends makes the results available to all stores and suppliers by early the following day so as to achieve efficient product replenishment.  It gives stores a high level stock availability by determining the right quantity of the right products.  

Radio tagging technology as a means of information transfer is an increasingly important component of risk management as well particularly when Coles Myer decided to protect its stores with radio frequency electronic article surveillance (EAS) since 1998.  This protection system across Coles Myer group including in the Target and Kmart general merchandize brands puts Coles Myer squarely behind the source of tagging momentum in the Australian marketplace.  The source of tagging program at Target has already had a great deal of success.  It also demonstrated the benefits of source tagging for both retailer and supplier, with new products being introduced into stores as a direct result of their being sourced tagged.  It saves time and increases accuracy as well. (5)

Conclusion

Today's customers are very different.  They expect the exact products they want, when they want them, at the right price.  An expensive option to quickly react to customer demand is to keep lots of finished goods inventory, but what happens when the market demands something else?  The obsolete product becomes wasted money.  Companies use supply chain planning to anticipate conditions and "act, not react."  Properly applied, supply chain management can provide a company with a range of visibility that extends from its supplier's supplier to its customer's customer.  A supply chain supports the flow of goods and materials from the original supplier through multiple production and logistic operations to the ultimate consumer.  Definitely, supply chain management plans and controls this flow, to speed time to market, reduce inventory levels, lower overall cost and enhance customer service and satisfaction.

Even though Coles Myer is about 12 to 18 months behind Woolworths in the supply chain management, they are is now closing this gap rapidly as they understand that it is crucial to effective in supply chain management.  Without this, a lot of time and effort is wasted in obtaining and gathering information and transforming this into a “Like for Like” scenario.  Collaboration from each brand with Coles Myer Limited supply chain planner is critical to ensure the optimum channel and delivery process is achieved.  After all, Myer, Kmart and Target are mostly in the same shopping centres.  Therefore the delivery of like merchandise to these stores should and does occur via the same truck therefore saving time and money for each brand.  To conclude, supply chain management is very important to Coles Myer and its subsidiaries.  This is one area that has the biggest potential for eliminating costs on a sustainable basis.  It is also one area that can truly perform cross brand processing and at the same time do it for a lower cost per carton.  The savings that are currently being quoted are approximately $425M across Coles Myer.  This figure would then go directly to Coles Myer Limited’s bottom line profit.  Companies that improved its supply chain management have not only survived – they have thrived.  Those lacking the agility and commitment to change did not – and they either have failed completely or fallen further behind business world.  The transfer of information as seen in Target’s Supply Chain Management provided a unique opportunity to learn from many of the corporate champions of supply chain management; how they think strategically, how they adapt and focus large organizations on supply chain management excellence, and how they shape their environment and build a culture to remain ahead of their competitors.  

Bibliography

1. Boone, T. & Ganeshan, R. (2002)  New Directions in Supply-Chain Management: Technology, Strategy, and Implementation, Project Management Institute.
2. Bowersox, D. J., Patricia J. D, Droge, C. L., Germain, R. N. and, Rogers, D. S.. (1992) Logistical Excellence. Burlington, Mass.: Digital Press.
3. Gadde, Lars-Erik and Håkan Håkansson, (2001) Supply Network Strategies. West Sussex, UK: John Wiley & Sons.
4. Turban, McLean & Wetherbe  (2001) Information Technology for Management: Transforming Business in the Digital Economy.  John Wiley & Sons Inc; 3rd edition p. 338
5. www.zdnet.com.au/news/business

Reference

1. Andrew Potter. Supply Chain Transformation: “Better for our customers simpler for our stores cheaper for CML”
3. Coles Myer Limited.  
4. John Babb. May 2001. Supply Chain Management Primer. ITtoolbox.
6. Leah Gormly. April 2002. Supply Chain Overview. ITtoolbox.
8. Quality assurance audits.