by David Braue

Supply chain management in Australia – Part 1

Sep 19, 20114 mins
CareersERP SystemsInnovation

It all started, as these things sometimes do, with a chicken.

A whole lot of chicken, as it turns out: $67,732.73 worth. And it had been ordered as a parting shot at Red Rooster by a disgruntled employee of the chain’s Indooroopilly, Queensland store as he left the company for the last time after a dispute with management.

This incident — the makeup of which was unusual but its nature far too common — highlights the crucial relationship between partners at every level of today’s supply chains. The order was so much larger than the store’s normal purchases that it was caught not within the fast-food chain’s own systems — handily circumvented by the instigator — but by a supplier, who contacted the store’s owner and resolved the matter before calling police in to investigate.

Companies of every size, in every industry, face a range of risks from inadequately considered supply chains. Despite years of supply chain improvement, surveys suggest many smaller discrepancies regularly go unreported, leading to significant stock losses with direct financial repercussions as the effects of bad data are compounded. For forward-looking CIOs, the situation is a call to action as existing business pressures are further complicated by moves to extend supply chains online, and to integrate new requirements such as carbon accounting into businesses’ supply chains.

How to fix supply chain data errors

Industry group GS1 recently quantified the extent of supply chain-related losses within the grocery industry in its Data Crunch Report, in which it estimates the Australian grocery supply chain will lose $1.035 billion to bad data over the next five years. GS1 spoke with Woolworths, , Metcash, Kimberley-Clark, Nestl?, Procter Gamble and Unilever, which together account for the bulk of our fast-moving consumer goods (FMCG) market. The report was supported by IBM, the Australian Grocery Council and Efficient Consumer Response Australasia.

Woolworths recently suffered an anthropogenic supply-chain hit when a mis-entered discount led to the price of all products, rather than the intended single product, being cut in half. Yet high-profile manual errors distract from smaller errors that are equally insidious but far less obvious; with 80 per cent of data deemed to be inconsistent or inaccurate in GS1’s survey, it’s entirely likely that the average FMCG supply chain is riddled with errors.

It has major repercussions for retailers, with 65 per cent of the cost of bad data linked to lost consumer sales due to stock-outs, 31 per cent leading to administrative shrinkage costs in ordering and invoicing, and 4 per cent due to the cost of manual workarounds to source missing data and correct errors. In other words, fixing bad data is relatively easy and inexpensive — as long as you know where it is.

Read more in Supply Chain Management 101.

A growing need to improve these efficiencies has fuelled recent supply chain management initiatives at many of Australia’s biggest retailers. Harvey Norman, for one, decided last year to introduce an SAP IS Retail-based environment that will eventually manage 15,000 users across more than 200 stores in the Harvey Norman, Domayne, Joyce Mayne and Norman Ross brands.

The new environment will replace aging legacy systems, provide a unified core stock-management and master data management (MDM) system across a broad variety of franchisees, and “have a positive impact on our online operations” chief operating officer, John Slack-Smith, recently said, tying the project into the company’s fledgling efforts to extend its brand into online retailing.

Online, of course, customers interact with companies as brands and expect visibility of current stock and availability levels. And if they can’t find what they want from one supplier, they’ll waste no time going to another — representing a lost opportunity for the retailers and reflecting GS1’s 65 per cent figure.

By 2013, Harvey Norman expects to have a broad range of functionality live online — including ordering, payment, dispatch, order tracking, delivery and more.

“It’s going to be the system that will provide a consistent platform that will allow us to be far more flexible and pervasive online,” Slack-Smith explained. “Our transformation activities will reduce operating costs, reduce out of stocks, reduce lost opportunity and increase customer satisfaction.”

Such goals remain running targets for FMCG giants like Woolworths and Coles.

Woolworths has undergone a series of supply chain management improvements in recent years under the auspices of its nearly decade-long $1 billion ‘Project Refresh’ initiative. The retailer has also been working on a service oriented architecture designed to allow better visibility of key information along its supply chain, which has been extensively consolidated to improve areas such as efficiency of distribution.

Read Part 2 – Parking the Rolls.