49680 Value Chain Engineering Systems

Assignment II
11584719 Angad Grover
Due Date: 13 October 2014

49680 Value Chain Engineering Systems

11584719 Angad Grover

University of Technology, Sydney

Assignment - II

EXECUTIVE SUMMARY
This report analyses the as-is value chain of Woolworths, which is the largest
supermarket chain in Australia.

Woolworths value chain was analysed using Porters Value Chian Analysis
Description. The report explores possible situations that could be used to enhance
Woolworths existing value chain, thus optimizing it to further enhance its efficiency
and productivity.

The three mentioned scenarios were then tested using Porters 5 Forces to analyse the
benefits and/or risks they might bring along with them.

49680 Value Chain Engineering Systems

11584719 Angad Grover

University of Technology, Sydney

Assignment - II

TABLE OF CONTENTS
EXECUTIVE SUMMARY..........................................................................................2
Table of Figures............................................................................................................3
INTRODUCTION........................................................................................................4
PORTERS VALUE CHAIN ANALYSIS....................................................................5
Primary Activities.....................................................................................................................6
Support Activities...................................................................................................................10

STRATEGIC APRROACHES TO OPTIMIZE VALUE CHAIN.........................13

Strategy 1: Focus On Core Competencies And Outsource All Other Activities......................13
Strategy 2: New Business Growth..........................................................................................14
Strategy 3: BIG Data Analytics For Data Driven Forecasting................................................15

ANALYSIS OF SCENARIOS USING PORTERS FIVE FORCES......................16

Strategy 1: Focus On Core Competencies And Outsource All Other Activities......................17
Strategy 2: New Business Growth..........................................................................................18
Strategy 3: BIG Data Analytics For Data Driven Forecasting................................................19

CONCLUSION...........................................................................................................20
REFERENCES...........................................................................................................21

TABLE OF FIGURES
Figure 1: Porters Value Chain Model.............................................................................6
Figure 2: Porters Five Forces.......................................................................................16

49680 Value Chain Engineering Systems

University of Technology, Sydney

11584719 Angad Grover

Assignment - II

INTRODUCTION

Woolworths Limited was originally founded on 5th September of 1924 under the name
Wallworths Bazzaar Ltd and opened its first store in Sydneys Pitt Street. Colloquially
known as Woolies, Woolworths is a wholly owned subsidiary of Woolworths Limited
and operate under the slogan The Fresh Food People. It has become the largest
supermarket chain in Australia having 40% of the market share and in the process
becoming a domestic name.

Woolworths along with Coles forms a duopoly in the Australian market having a
cumulative share of 72.5% (July 2014). However, with the expansion of German
Chain ALDI this duopoly has been challenged.

Woolworths core values are to act responsibly both inside and outside stores. They
believe this will help them earn their customers' respect and trust thus enabling them
to make informed decisions, which are eco-friendly and ethical.

49680 Value Chain Engineering Systems

University of Technology, Sydney

11584719 Angad Grover

Assignment - II

PORTERS VALUE CHAIN ANALYSIS

Meaning of value today can be professed by both money and gain.

Michael Porter believes that a company has limited scope for long-term success if it
focuses only high costs without any differential gains. Reducing customers costs can
bring in increasing benefits and customers value can be defined as Perceived
Benefits divided by Total Cost Of Ownership.

Focussed companies perform activities that enable them to add value to their
products; these include actions such as production, marketing and the establishment of
after-sales service. Such activities constitute a value chain. Porter believes value
chains are not free standing and instead should be seen as part of a wider value
creation system (Porter 1985).

Porters analysis of various companies value chain resulted in him finding primarily
nine types of activities. He grouped them in to five primary activities that contribute
directly to output and four support activities that these support primary activities by
procuring and organizing necessary resources (Porter 1985). Figure 1 shows Porters
Value Chian Model.

49680 Value Chain Engineering Systems

11584719 Angad Grover

University of Technology, Sydney

Assignment - II

Figure 1: Porters Value Chain Model

Primary Activities

Inbound logistics
Woolworths is essentially a retailer, as it does not manufacture most of the produce it
sells. Woolworths only has a controlling function over the distribution network of its
products. They have thousands of suppliers without whom they believe they wouldnt
be able to do business and hence try their best to balance their best interests. More
than 80% of their supplies have been partners for more than a decade and they tend to
keep that intact.

Woolworths uses their Primary Freight Transport Management System (TMS) to

manage transport operations with their trade partners, business stakeholders.

49680 Value Chain Engineering Systems

11584719 Angad Grover

University of Technology, Sydney

Assignment - II

Primary Freight trade partners need to register online to enable access to TMS. Once
they register they have the ability to manage their freight movements and also be able
to view the status of key performance indicators. This is done by having requirements
at their distribution centres that they implement on packages to ensure smooth service
between trade partners and their stores.

Outbound logistics
Outbound logistics refers to the transport and distribution of goods to customers.
Woolworths primary outbound logistics consist of home delivery of purchases to
customers.

Customers can place their order up to one week in advance and timings are 9am to
9pm Monday to Saturday.

Woolworths uses their Primary Freight Transport Management system to manage

transport operations with their customers as well. This system enables customers to
track freight movements.

Operations
Business operations are a set of activities performed by an organization to harvest
value from its assets. Woolworths two main operations Quality Assessment and
Inventory Management are directly aimed at improving customer experience.

49680 Value Chain Engineering Systems

University of Technology, Sydney

11584719 Angad Grover

Assignment - II

Quality assessment consists of standardized procedures that detect and

remove/replace defective products. Constant checks are made continually from the
time the products arrive to the time they go on display.

For each Stock Keeping Unit (SKU, SKUs are collection of product and product
variations/extensions.) there is a Minimum Presentation Level (MPL). Minimum
presentation level is the minimum level of stock required to ensure presentable stock
display. They also use a Point of Sale (POS) technology to keep rack of the number of
SKUs for each product and once the MPLs falls below threshold the system
automatically places a new order to replenish stock (Pierce 2009).

The channels where these operations are implemented are regular outlets and
Woolworths online stores.

Marketing and sales

Two activities that the marketing and sales team perform are In-Store Promotions
and Innovation. The sales and marketing team are constantly encouraged to come up
with innovative products and ideas. Woolworths has new short-term sales every week
where they offer heavy discounts on products. These could be end of season sale
where they try to get rid of stock. Example end of seasons sale include

Consumer trends and environmental changes pose a serious challenge to the

marketing and sales team. They must constantly innovate and show organizational
dynamism to meet these changes. Woolworths recently launched a election of ready to

49680 Value Chain Engineering Systems

11584719 Angad Grover

University of Technology, Sydney

Assignment - II

eat meals under the Woolworths Fresh brand to keep up with current lifestyles and
preferences of the average consumer.

Woolworths recorded a revenue of $61.2 billion and profits to the tune of $1.3 billion
in the financial year 2013-2014.

Service
Opening hours for most of the stores ranges from 7:00am to 10:00pm, seven days a
week. The staff uniform consists of a light green shirt, black pant and black shoes to
go along. They are trained to be friendly and courteous.

All Woolworths stores maintain uniform prices, barring situations where lower prices
are necessary to counter local competition. Woolworths provides self as well as
assisted checkouts and provides reusable checkout bags. They have flexible payment
options as they accept credit/debit cards from major banks. They also have a frequent
buyer program that consumers can enrol for. In the event you cannot not get to the
super market they also provide home delivery services.

Most of their outlets have a similar layout and organized in a similar so that
consumers can find their way around easily.

49680 Value Chain Engineering Systems

University of Technology, Sydney

11584719 Angad Grover

Assignment - II

Support Activities

Human resources
Human resources of an organization are personnel who make up the workforce.
Integrity, openness, accountability and boldness are the companies core values and
this what they try to impart to all their recruits.

Woolworths has a long-standing commitment to building internal capability and has a

staff strength of 198,309; of which 6500 of them have been working with them for
more than 25 years. They have the achievement of having retained all executive
women who were due to return from parental leave in the calendar year of 2009.
Woolworths aims to have a women representation of 33% on the executive group by
2015 (Woolworths Limited 2012).

Employees get competitive wages and comprehensive benefits. They have a fully
developed recruitment program that is well publicised and convenient.

Technology development
Packaging and Bar Code Specifications are used to control manufacturing,
distribution and store operations. Needs of manufactures, distributors, store operators
and consumers are taken care by using Radio Frequency Identity (RFID) for
packaging and using bar code specifications.

The movement of cargos from trade partners through their distribution network and
onto retail shelves is made easy and efficient using above technology.

10

49680 Value Chain Engineering Systems

11584719 Angad Grover

University of Technology, Sydney

Assignment - II

Distribution Centres monitor the compliance or non-compliance of cartons and pallets

and these are monitored and reported using a Vendor Quality Compliance (VQC)
System that is in place

Procurement
Procurement refers to the acquisition of raw materials, supplies, assets and other
consumables.

Woolworths procurement process is highly cost effective and has helped them cut
costs by $2.5 billion in recent years. They have a process wherein the suppliers
themselves ship the supplies to them at various regional or national distribution
centres. Here they are tested for quality and uniformity and then carried to their
outlets. Distribution centres and transportation channels are wholly owned by
Woolworths, this gives them great control in ensuring timely and effective delivery of
goods to their outlets.

Suppliers are chosen very carefully on the basis of criteria such as price, quality,
reliability of delivery and health & safety precautions taken. Supplier are required to
meet certain quality and environmental standards in and assumed to have undergone
certifications for the same.

Firm Infrastructure
Woolworths is a home-grown Australian business and has about 933 store locations
across Australia. They are the largest employer in Australia having strength of over

11

49680 Value Chain Engineering Systems

University of Technology, Sydney

11584719 Angad Grover

Assignment - II

190,000 employees and devoted business partners in the form of many thousand local
farmers, producers and manufacturers (Woolworths Limited 2012). They serve more
than ten million customers per week.

Woolworths has the following brands under its banner:

Woolworths Homebrand: A budget label covering everyday household items.

Woolworths Select: A premium brand.
Woolworths Gold
Woolworths Fresh: fresh range of kitchen products.
Macro Wholefoods Market

The firms Head quarters are located at Bella-Vista, New South Wales.

12

49680 Value Chain Engineering Systems

11584719 Angad Grover

University of Technology, Sydney

Assignment - II

STRATEGIC APRROACHES TO OPTIMIZE VALUE

CHAIN

Strategy 1: Focus On Core Competencies And Outsource All Other

Activities
A common mistake most companies make is when they try to perform too many
activities on their own and in the process neglect their core strengths. At times it is
better to just focus on the core competencies and outsource other actives to a third
party who is specialized at the same. These third parties often manage to perform
activities more efficiently as well as economically, which benefits the organization in
the long run.

Core competencies of Woolworths are its world-class supply chain that has gradually
improved over the years owning to innovation as well as competitive advantage and is
now highly efficient. Another strength is its sales and marketing which branded the
Fresh Food People slogan that has established Woolworths as the leading healthy
food supplier. Its third strength is the vertical integration of its suppliers. This
enables them to produce their own inputs and thus be able to respond faster to
changing market demand. Innovation in products is also a know strength of the
Woolworths brand.

13

49680 Value Chain Engineering Systems

University of Technology, Sydney

11584719 Angad Grover

Assignment - II

Strategy 2: New Business Growth

New Business growth is improving an enterprises success and profitability by

expanding the business. This is often done by investing in new ventures or
undertaking new projects. However, expanding business and introducing new
techniques has risks involved in it.

One foray where Woolworths or any Australian organization has yet to enter is drone
delivery service. While counterparts in United States are ready to implement drone
delivery services for their products, Woolworths is yet to begin work on similar
services. Amazon Prime the drone delivery service by Amazon in the United States of
America is ready to take off once they obtain necessary permissions from the
government.
Drones here refer to unmanned aerial vehicles capable of relatively easy take off and
landing with capabilities of carrying certain load. There is tremendous potential for
drone deliveries in remote or regional areas where shipping is difficult due to
infrastructure restrictions. Woolworths could potentially use drones for prompt and
effective delivery of goods within the city or for delivery to regional areas as well.
Drones would be more efficient and economical as compared to existing delivery
techniques.

Another strategy Woolworths could adopt is to launch smaller format stores

designated to best meet the needs of the local community. The stores will offer a
limited range of products such as milk, eggs, bread and other daily items needed by
consumers. To facilitate this projects Woolworths is trying to grab land spaces 200

14

49680 Value Chain Engineering Systems

University of Technology, Sydney

11584719 Angad Grover

Assignment - II

square metres in size at premium locations. These should be started as pilot projects in
major cities such as Sydney and Melbourne and then expanded to other cities.

Strategy 3: BIG Data Analytics For Data Driven Forecasting

Advancements in technology have made it possible to mine the data explosion we are
currently witnessing and scrutinize it. Data analysis is the detection of meaning
patterns in data by using analytical tools. Woolworths can use its data analysis wing
Quantium that helps businesses build value by using data to drive innovation,
customer engagement and business performance (Quantium 2014).

Data obtained from analysing consumer behaviour can help Woolworths improve
merchandizing in its stores. It can initiate customize merchandizing in adjacent
suburbs of the same city. For example, by analysing customer data it realised that
people of suburb X consume less chicken and more beef and consumers of suburb Y
consume more chicken and less beef. The products at their stores in the above
mention suburbs can be tailored for the consumers. This will help Woolworths to
optimize its inventory and improve product availability at its stores while improving
profit margins.

Data analysis can also be used to make predictions for the future, which will initiate
and generate demand driven forecasting to improve Woolworths collaboration with
its suppliers. For example, Woolworths can analyse previous Christmas data and
predict what they need to stock up for Christmas the following year and hence
accordingly collaborate with suppliers.

15

49680 Value Chain Engineering Systems

University of Technology, Sydney

11584719 Angad Grover

Assignment - II

ANALYSIS OF SCENARIOS USING PORTERS FIVE

FORCES

Porters five force analysis act as a framework to scrutinize the level of competition
within an industry. It can be used for development of business strategy. According to
Porter, knowledge of these five forces can help a company understand the structure of
its industry and fork out a strategy that is more lucrative and less susceptible to attack.
Porter five-force model is represented in the figure shown below.

Porter referred to them as microenvironment as they consist of those forces that are
close to a company and affect its ability to serve its consumers and make a turnover.

Figure 2: Porters Five Forces

16

49680 Value Chain Engineering Systems

University of Technology, Sydney

11584719 Angad Grover

Assignment - II

Strategy 1: Focus On Core Competencies And Outsource All Other

Activities

Since one of the core competencies is its world-class supply chain Woolworths it must
focus on continuously optimizing it. This will combined with its status as the leading
supermarket chian in Australia will help keep the balance of power in Woolworths
hands resulting in low bargaining power of the suppliers thus them competitive
advantage.

Another of its core competencies is its marketing and sales. With its highly productive
and efficient marketing team it can keep the threat of substitutes products and services
to a low.

With its current position of having the largest chunk of the Australian market and
power it exercises over suppliers; Woolworths manages has not really left any scope
for new entrants to enter the market.

However, outsourcing of activities or processes has it own share of problems issues

such as loss of managerial control and possible theft of intellectual property. Also, the
third partys failure to deliver say due to strikes or other internal issues can cause
shortages of products. This shortage will cause competitive disadvantage.

17

49680 Value Chain Engineering Systems

11584719 Angad Grover

University of Technology, Sydney

Assignment - II

Strategy 2: New Business Growth

Expanding your business by entering in to new territory is both beneficiary and risky.
If Woolworths goes ahead with this business strategy of launching smaller format
supermarkets. They would be competing directly with already established convince
stores such as 7- Elevens, Independent Grocers of Australia (IGA) and City Convince
Store to name a few. This spells high competitive rivalry. High competitive rivalry
means the threat of substitutes is also high.
Studies show customers habits can be hard to change and they prefer going to the
convince store they have been going to all these years thus proving high bargaining
power of consumer, which is not an ideal scenario.

Also launching a drone delivery service, which would be an industry first, would give
them an edge over their rivals. This would reduce rivalry among competition and in
turn probably reduce bargaining power of buyers at least till the time rivals do not
come out with similar services.

However, this kind of service may have an unforseen impact, it could easily be a miss
as it could be a hit. Customers may not prefer this form of delivery by robots and the
whole strategy could backfire on the company. This would again result in competitive
disadvantage giving the edge to rivals.

18

49680 Value Chain Engineering Systems

University of Technology, Sydney

11584719 Angad Grover

Assignment - II

Strategy 3: BIG Data Analytics For Data Driven Forecasting

Using data analysis to optimize its inventory and improve product availability can go
a long in in insuring customer satisfaction.
Say for example based on previous years analysis Woolworths found it sold a large
amount of super hero toys during Christmas and was often short on stock this resulted
in disgruntled customers. However, the scenario this year could be completely
different as it piles enough stock in anticipation for a Christmas sell out. Having
enough stock to please customers will result in a competitive advantage and reduce
the bargaining power of buyers, as they will have nowhere else to go.

Mistakes in analysis of past records and consumer data may result in incorrect
stocking of products at stores. This could tend to have the opposite effect it was meant
to have; resulting in disgruntled customers. They would then go rivals to find the
same products thus demonstrating high competitive rivalry.

19

49680 Value Chain Engineering Systems

University of Technology, Sydney

11584719 Angad Grover

Assignment - II

CONCLUSION

In order to be successful every business needs to grow and expand, however this can
have both benefits and risks.

The above-mentioned strategies if implemented correctly and successfully can help

keep bargaining power of buyers and suppliers low as well as minimizing threat of
substitutes and new entrants.

We know Woolworths is already the leading supermarket chain with the highest
market share and has a highly efficient and productive value chain. Nonetheless its
strategies can always be tweaked for greater gain and profitability.

20

49680 Value Chain Engineering Systems

11584719 Angad Grover

University of Technology, Sydney

Assignment - II

REFERENCES

Porter, ME 2009, The Five Competitive Forces That Shape Strategy, Harvard
Business Review, Vol. 86, Issue 16. [Accessed 29 September 2014].

Jurevicius, O. 2013, Value Chain Analysis, Weblog, Strategic Management

Insight.
Available at: <http://www.strategicmanagementinsight.com/tools/value-chainanalysis.html> [Accessed 29 September 2014].

Montgomery, R. 2012, Forcing Bright Prospects, Weblog, Roger Montgomery

Available at: <http://rogermontgomery.com/guest-post/>
[Accessed 29 September 2014].

Porter, M. 1985, Competitive Advantage Creating and Sustaining Superior

Performance, Free Press, London.
Available at:
<https://faculty.fuqua.duke.edu/~charlesw/s591/Bocconi-Duke/Papers/c06/Porter
%20(Chap.%201,%201985)%20Class%206.pdf> [Accessed 29 September 2014]

McKinna 2009. ACCC Grocery Inquiry: Reccommendations Unlikely To Increase

Competition.
Aviailable at:
<http://www.mckinna.com.au/uploads/downloads/ACCC_inquiry_statement.pdf>
[Accessed 2 October 2014].

Fenner, R. & Raja, S. 2009. Lowe's Bets on Australian Home Starts with
Woolworths.
Available at: <http://www.bloomberg.com/apps/news?
pid=newsarchive&sid=aVysuB47Z.yQ> [Accessed 9 October 2014].

Pierce, E. 2009. A Personal Account on the Internal Operations of Woolworths.

[Accessed 1 October 2014].

Woolworths, Coles to take on convenience stores 2014. Woolworths, Coles to take

on convenience stores.
Available at: <http://www.smh.com.au/business/property/woolworths-coles-totake-on-convenience-stores-20141005-10qhgw.html#ixzz3FSfhsy6j> [Accessed 2
October 2014].

21

49680 Value Chain Engineering Systems

11584719 Angad Grover

University of Technology, Sydney

Assignment - II

Strategy and Objectives - Woolworths Limited. 2012. Strategy and Objectives Woolworths Limited.
Available at:
<http://www.woolworthslimited.com.au/page/Who_We_Are/Strategy_and_Object
ives/> [Accessed 12 October 2014].

What is business growth? definition and meaning. 2014. What is business growth?
Definition and Meaning. Available at:
<http://www.businessdictionary.com/definition/businessgrowth.html#ixzz3FkDhDcHy> [Accessed 1 October 2014].

Woolworths wowlink, Supply Chain. 2014Available at:

<https://www.wowlink.com.au/wps/portal/topic_centre?
WCM_GLOBAL_CONTEXT=/cmgt/wcm/connect/Content%20Library%20%20WOWLink/WOWLink/Topic%20Centre/SupplyChain>
[Accessed 2 October 2014].

Porter's Value Chain, Strategy Skills Training 2014, Porter's Value Chain Strategy Skills Training from MindTools.com.
Available at: http://www.mindtools.com/pages/article/newSTR_66.htm.
[Accessed 7 October 2014].

22