Porter’s Five Force Value Chain Analysis of Woolworth Limited

Discuss About The Customer Service In Supply Chain Management.

Company’s value chain remains a key determinant of quality, cost and service delivery within the company. The company’ value chain network can be analyzed based on Porter’s Five force value chain analysis and some of these elements include inbound logistics, management, operations, marketing and sales, and services. Woolworth limited is the second largest retailer in Australia and New Zealand. The company has a wide value chain network that spread across Australia to its international branches in New Zealand. The main aim of the paper is to explore the value chain of Woolworth limited as it is citing some scenarios that can be used to optimize value chain based on Porter’s five force value chain analysis.

The value chain of Woolworths Limited can be described using the Porters value chain analysis that includes five areas of analysis. Porter’s value chain analysis considers various factors inbound logistics, outbound logistics, operations, marketing and sales, and service.

The Woolworths Limited inbound logistic is described based on various enablers that make the business package and move goods within its warehouse. The inbound logistics involve moving products throughout the organization from its main store or warehouse to various store that are spread throughout the country and New Zealand. The company has its own transport system that it uses to move products throughout the organization. The company has a distribution center from where goods are distributed to other stores within the value chain of the organization (Cambridge University 2013).

Woolworths Limited has various operational activities that include packaging. The company package products after obtaining those products from suppliers using packaging materials using a barcode that enables easy stock management. Some of the operations also include demand and supply management operations that mainly focus on identifying areas that need to be supplied with products. In addition, the company through demand and supply management ensures that all stores within the Woolworths brand are stocked with goods (Schueneman 2016).

The company has outbound logistics that involve moving goods from suppliers facility to distribution center of the company. Firstly, the company has a good Primary Freight that is used to move products from supplier’s premises to distribution center from where the products are distributed to various stores within the organization. Secondly, international logistics involves moving products from the premises to other international stores in the country of New Zealand. The logistic map starts from suppliers’ facility, Woolworth distribution center through to international warehouse located in New Zealand. The company has come up with a system called KNLogin that is used to manage international logistics. The platform consists of the online system used to support the process of international movement of goods under order confirmation, monitoring, status updates, and performance measurement. Thirdly, there are also some international suppliers that are also part of the outbound logistics (Lavassani, Movahedi & Kumar 2009, pp. 85–98).

Inbound Logistics

Marketing and sale as value chain element for Woolworth can be divided into three levels. Firstly, the first level of products marketing and sale is done through companies stores that are spread throughout Australia. Woolworth has many stores and some are (BWS, Dan Murphy’s, Woolworths Liquor, Woolworths, Countdown (supermarket), Thomas Dux Grocer, Food For Less, Flemings among many more. Secondly, the company has an online business platform that the business use to market and sells its products throughout the region. Moreover, the business uses its various online platforms fitted with e-commerce software that allow purchase or order of products. Lastly, the international business marketing department focuses on marketing and selling products through its international store outlets mostly based in New Zealand (Woolworths Limited 2018).

Service as part of the value chain of the can be described based on the various services that are offered in Woolworth company. Firstly, customer service is a primary service that is offered to customers and includes after sale services. There are many different after sale services that are offered to a customer that entails delivery service for some customers while some customers buy products through an online platform. Secondly, in-house customer services are another set of products that the business offers to the customer. Some of the customer services include product user guideline and installation of various products (Woolworth Limited 2018).

Digital value chain combines all players of the value chain into a single system for faster service delivery. Digital values system is where the value chain map is combining KNLogin system and internal operations to link other players with the whole company values system. A close look at a digital system, the system functions as blockchain system to enable the company value system optimization. The digital value chain has a high capability of increasing efficiency of customer service and faster delivery of products or service throughout the organization (Hadley 2015).

Some of the players that are part of the digital value chain are customers, management, suppliers, distributors and international partners. Firstly, customers are connected to the values chain through subscriptions and registration on the company’s online platforms. Secondly, management of the company also forms part of the digital value chain and monitor movement of goods and services within the chain. Thirdly, suppliers are some other players that supply products and are connected to the chain from their businesses or premises. Fourthly, distributors as part of the value chain receive orders through the system and transport products to other places under the coverage of the company. At the last point of the digital value system is the partners that also help the business to operate within the international market platform (Hadley 2015).

Operational Activities

Figure 1: Digital values chain system

Benefits of the digital value chain can be described based on Porter’s five forces analysis of the value chain. Firstly, inbound logistics of the Woolworth logistics will be optimized since the digital value chain payment of players will be made easy and simple. In addition, the movement of products within the company will be easy due to digital control of products through one single system that is accessible through any point. Distribution department can get orders faster and deliver products to any store within the company value system (Wieland & Wallenburg 2011).

Inbound logistics when incorporated into the digital value system slow distributions and may incur a high cost. The digital ordering of goods is connected to the real-time delivery of goods and service to customers. Digital value chain enables the customer to order product yet without accumulation of goods lead to high cost of transportation of each customer orders. In addition, distribution of goods from warehouses to stores under digital value chain compromise the need for transportation as good can also be delivered directly to customers from the warehouse (Joost 2016).

Secondly, outbound logistic based on the digital system scenario will benefit the supplier and other business that are connected to the business. International logistic that the company normally transport products to the international warehouse will be made easy with the digital values system since business management will just order products through the system to be delivered to the warehouse (Kildow, 2011). There are some risks that are associated with the digital value chain at the outbound logistic level. International digital value chain management is tricky as customers ordering products internationally lead to high cost of products shipment. High transport cost is always attributed to the ability of the customer to order products at any point without considering the time and cost of importation or shipment of these products (Poluha 2016).

The operational value chain elements are optimized under digital value system since the company can also integrate its various operation management processes into the system. Inventory management, for instance, becomes easy under the digital value chain as a monitor of inventory become easy due to the flexibility of the system. The risk associated with digital value system is slow operation caused by huge workload within the system and this may reduce the efficiency of the operations. The digital operation system requires large digital data system with the capability of handling local and international operations. The digital values chain has a high connection that may require high operational efficiencies enabling smooth operation of the company’s value chain (Todo, Matous & Inoue 2016).

Outbound Logistics

Marketing and sales element of Porters’ five force analysis show some benefits of the value chain as the system over the opportunity for marketing of products at any level of the values system. For instance, a product that has already been placed within the value chain can be purchased through any outlet of the company. In addition, the values system offer a way to communicate to customers that are also connected to the values system through subscription and registration into the company (Kozlenkova, et al 2014, pp 1–21). Risks associated with digital values system are also felt at the marketing and sale elements of the value system. Slow marketing of the goods for the company may attribute to the digital values system unless the value system is upgraded to a more robust system. Reaching customers through digital values chain is sometimes complex and may lead to low quality of customer service. Customer’s services under the digital values chain are reduced leading to poor customer service. This implies that the value chain will allow customers to offer self-service with minimal assistance from the company marketing department and the only role that the company plans to deliver products to the customer (Movahedi, Lavassani & Kumar 2009).

The partnership is another area through which the company can optimize its value chain system. International partnership is one area that is beneficial for value chain optimization since the values chin with partnership will reduce some aspects such as transportation of products to international warehouses. The partnership involves partnering with manufacturers and suppliers within the international platforms to reduce the cost of transporting good from Australia to other countries where Woolworth has its branches. The main importance of the system is based on the need to source most of the products within the country where the store is located without the international logistic requirement. In addition, the partnership approach reduces the international orders since orders are directly delivered from suppliers to the customer with that country and there no need of transport goods from one country to another (Gurría 2012).

Porter’s five forces can be used to describe the benefits of the partnership as a value chain optimization system. Firstly, operations are optimized through partnership since most of the operations are done within the area of operation and limited international logistics that increase the cost of transport. Under the partnership, operations are limited within a particular country and those international orders are handled within the country of order or operation. This reduces the time that it takes to transport or deliver goods internationally. The risk associated with operations in the scenario where there is partnership low quality of goods as some good may not be available within the locality or may have low quality. Partnership with local producers or manufacturers may lead to low quality of good as the quality of local products is not guaranteed (Woolworth Group 2018).

Marketing and Sales

Inbound logistics work within the country where a store is located and reduces the logistic coverage for the company. Movement of good from the distribution center to various store is done faster since partnership reduces the impact of the wide network of inbound logistics. The partnership ensures that suppliers are country-based and can easily connect to the company through outbound logistics. The inventory system becomes easy as the business depends on internal value chain system shorter that under normal values chain (Exforsys 2007). Thirdly, outbound logistic is another area that shows benefits and risk associated when the partnership is introduced. Partnership reduces the outbound logistics since the company partners with local manufacturers, suppliers, and producers. Outbound logistics are always attributed to high cost of the products as some transport networks are longer increasing the cost of goods. For instance, international customer orders incur high cost attributed to transport and shipment logistics. Partnership with local suppliers enable the business to get most products within the locality hence high prices of good is avoided (Geissdoerfer, Morioka, Carvalho & Evans 2018, pp 712–721).  The risk associated with introducing partnership within the value chain includes the low value of goods sourced locally. Partnership with local suppliers may lead to the supply of goods of low quality. The high cost of local products is another key risk that may result from the partnership with the company through its wide network of branches will create an automatic market for product leading to high cost of goods. In addition, local producers may raise the cost of their products since they are the main source of products sold within the business facility (Movahedi, Lavassani  & Kumar 2009).

Fourthly, marketing and sale of products with the value chain also show some benefits of partnership. Partnership improves the marketing as some suppliers can supply products directly to the customer through the company. Woolworth has KNLogin system that manages the supply of good to the company and partnership enable suppliers to supply products to the customer without necessarily passing through the company. These current online marketing strategies that use company information system, customers can be connected to distributors through the system hence reducing the operation cost of transporting products to store then to customers. This enables optimization of the values chain that in turn reduces the cost and price of products (Jacoby 2009). The risk associated with partnership especially at the marketing and sale level of the value chain is the creation of a market for local producers that are most likely to benefit than the company. This partnership system reduces the need for the business in the first place since suppliers can supply their products to customers directly. When suppliers and local producers are connected local manufacture and suppliers will reduce any possibility of linkage between the company and customer hence benefit in long run. Moreover, customers will, therefore, purchase the product directly from producers leaving the Woolworth company (Kildow 2011). 

Customer Service

Benefits of partnership at the service level of the value chain are felt through low service cost and faster service delivery time. Service delivery can sometimes require high network and low period of time. Partnership within value chain helps reduce the time for service delivery and optimize values chain. For instance, a partnership with local companies especially on the international Woolworth branches will reduce the time it takes to get service from the main office in Australia. More services can be offered through partners within the local community as compared to international service delivery system. The supplier in New Zealand can provide after sale service to customers on behalf of Woolworth since they are the suppliers authorized by the company to sell products to customers. The risk that is visible with partnership arrangement is low quality of service delivery and possible dealings that are not part of the partnership. As the local supplier provide service on behalf of the company more care need to be ensured as the Woolworth normally value customer service quality. Local partners may not be in a position to provide the required quality service and this, therefore, requires the company to provide services itself.

Direct plant shipment is another value chain optimization scenario that involves direct shipment of goods from plants to consumers. Under this arrangement, the value chain is shortened and more focus is placed on delivery of goods to consumers. For this system to work the purchase of goods from plant need to be synchronized to ensure that the inventory is properly managed and is monitored to keep track of goods delivered to consumers. This scenario connects customers, manufacturers, and distribution management system to ensure high delivery efficiency. Moreover, the direct plant shipment keeps track of some products that are within the regional distribution center to increase the number of customers served at one time. Introduction of direct plant shipment can be analyzed based on Porter’s five force value chain analysis system (Gary 2018).

Inbound logistics are optimized through DPS since the value chain is reduced leading to low cost of moving goods. Direct shipment of products ensures that only some products that are stocked under the store are moved from the warehouses to stores. Other products that are delivered to customers are sourced directly from plant to customers. In addition, those customers that near regional distribution center is served from that point within the shortest time possible. Movement of goods from the warehouse is restricted leading to low operation or distribution cost of products (Microlinks 2009). Risks that can be attributed to direct plant shipment is limited monitor or control of inventory. Inventory management is tricky when the direct shipment is part of value chain since the business has limited control over those goods that are shipped directly from plant to consumers. This presents challenges that may reduce the profitability of the business due to the complexity of inventory management (Schueneman 2016).

The Role of Digital Value Chain

Operation cost is reduced under direct plant shipment since most products do not pass through the company and are delivered directly to consumers. Operation cost is always connected to transportation and storage of goods within the store and warehouse of the company. To reduce this cost direct shipment of goods from manufacturing plant to the customer comes into play. Risks associated with direct shipment are high demand and supply management as most of the products do not come into stores. The company needs to keep stock in its stores and this is possible through the direct supply of goods from plant to the distribution center. Direct shipment method cut this channel leading to the low amount of good supplied to the stores. This may create high demand with low supply of good demanded (Kildow, 2011).

Outbound logistics department is also beneficiaries of the direct shipment since most good are transported directly from plant to customers. The outbound logistics network is reduced leading to short time delivery of goods to customers at low cost. The optimized value chain has a high possibility of benefiting customers through high service delivery though inventory system becomes complex (Mitchell, Coles & Jodie 2009). The risk that is attributed to direct shipment is based on the inventory management challenges as the company relies on the shorter value chain. The direct shipment requires a high digitalized system that will ensure that products ordered by customers are delivered directly to customer and records are clear. This is to ensure the profitability of the whole system and the accounting information are properly reconciled (Mallik 2010).

Marketing and sales of Woolworth can be optimized through direct shipment of goods to customers. The benefits of the scenario are based on the customer focus that ensures business market to customers at lowest cost and directly. The time take to deliver good to the customer is reduced and this ensures that quality of customers service is high. The business also benefits through reduce operational cost for some operations such as distributions and packaging (Kozlenkova, et al 2015). The risk associated with direct shipment to consumers is the possibility of low quality of products. One of the listed operational management normally done within the Woolworth value chain is the packaging of goods. Reducing value chain network through direct shipment of goods to consumers means there is no packaging normally done and this has high chances of reducing quality and value of products sold directly to customers (Wieland & Wallenburg 2011).

Services is the last element of Porter’s five force value chain analysis and benefits include faster service delivery, a large number of customer served and reduced the cost of service. Shorter value chain means faster service delivery as products are delivered directly to customer from plant or regional distribution centers. A larger number of the customer is served with the shortest time since the value chain is directed to customers. The cost is also reduced since the shorter the value chain the few the service that is required that in turn increases the cost (Mallik 2010, p. 104). The risk that is observed through the direct service delivery to the customer is lack of expertise among distributors that enable them to serve customers efficiently. There are some services that need to be delivered through the organization for quality purpose and delivering such services directly to customers require high caution (Blanchard 2010).

Conclusion

In conclusion, Woolworth remains one of the largest companies in Australia and regionally. The value chain of Woolworth begins at the suppliers, through company warehouses to stores and to international branches. Porter’s five forces analysis offers a good basis for analysis of the value chain of the company. Some of the scenarios that can optimize the value chain are digitalization of the value chain, partnership and direct plant shipment (DPS). These scenarios have both benefits and risk associated that are also analyzed based on Porter’s five forces value chain analysis.

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