SUPPLY CHAIN AND PURCHASING MANAGEMENT

WOOLWORTHS SA:
SOMETHING IN THE YOGHURT MIX
Group 2 Members:
- Astrid Kartika - 1706088233
- Diah Retno Eristianti - 1706088340
- Ermila Klislinar - 1706088473
- Eryne Riptantya - 1706088486
SUPPLY CHAIN AND PURCHASING MANAGEMENT

WOOLWORTHS SA:
SOMETHING IN THE YOGHURT MIX

Outline:
- Case Synopsis
- Problem Identification
- Related Theories
- Case Analysis
- Conclusion and Recommendation
- Lesson Learned
CASE
SYNOPSIS
Good Business Journey of Woolworths SA

https://www.youtube.com/watch?v=CpFUCb0YwAg
 Case Synopsis

•2008

Sourcing Issues: 2nd Tier Supplier Unacceptable for:

2008: Shock to the system
using gelatine in its products Muslim, Jewish, Vegetarian
PROBLEM
IDENTIFICATION
Problem Identification

How to recover company's reputation?

● how to maintain relationship with consumers that have

problem with the inclusion of gelatine?

● which decision to be made whether to recall the products or

keep quiet then privately dealing with the raw material
supplier?

What actions needs to be taken against the

supplier?
RELATED THEORIES/
FRAMEWORK/MODELS
 Purchasing

03 Maximize customer
satisfaction

Ensure uninterrupted flows

of raw materials at the
lowest total cost

01 02
Improve quality of finished
products
Definition
Key business function that is responsible for
acquisition of the required materials, services and
equipment.
 Purchasing Process

The goal of proper purchasing system is to ensure:

● Efficient transmission of information from the users to the purchasing Advantages of e-procurement:
personnel, and ultimately, to the suppliers.
1. Time savings
Related documents: Purchase Requisition (PR), Request for Quotation
2. Cost savings
(RFQ), Request for Proposal (RFP), Purchase Order (PO)
3. Accuracy
● Efficient flows of the purchased materials from the suppliers to users
4. Real-time
and the flow of invoices from the suppliers to accounting department
5. Mobility
Related documents: Delivery Order, Invoice 6. Trackability
7. Management
8. Benefits
Supply Management Defined as:
Identification, acquisition, access, positioning
and management of resources an organization
needs or potentially needs in the attainment of
its strategic objectives (The Institute of Supply
Management).

Activities have expanded beyond the basic

purchasing function to include following key
activities:
● Negotiations
● Logistics
● Contract development and administration
● Inventory control and management
● Supplier management, etc
Supply Management Decisions:
Supplier Base

Supplier base refers to the list of suppliers that a firm uses to acquire its
materials, services, supplies and equipment. Aside from the purchased
products/services, key

Firms emphasizes long-term strategic supplier alliances by reducing the variety suppliers provide:

of purchased items and consolidating volume into one or fewer suppliers, ● Product and process

resulting in smaller supplier base. technology and expertise

● Information on latest
trends in materials
● Information on the supply
market such as shortages,
price increase or political
situation
Supply Management Decisions:
Supplier Selection

Aside from cost and delivery performance, following factors should be taken
into account when selecting suppliers:
1. Product and technologies competencies
2. Willingness to share technologies and information
3. Quality
4. Cost
5. Reliability
6. Order system and cycle time
7. Capacity
8. Communication capability
9. Location
10. Service
Sourcing Decisions:
Make-or-Buy Decision

MAKE BUY Can impact

competitive position
companies’

● Protect proprietary ● Cost advantage Break-even analysis as

technology ● Insufficient capacity computing tools for
● No competent supplier ● Lack of expertise
cost-effectiveness of sourcing
● Better quality control ● Quality
decision
● Use existing idle capacity
● Control of lead time,
transportation and
Generally, firms outsource
warehousing cost
● Lower cost non-core activities while
focusing on core competencies
CASE
ANALYSIS
Case Analysis - Recall or Quiet?
RECALL PRODUCTS
Disadvantages
• Has consequences of damaging company’s reputation and affect Company’s profitability
• Public relation disaster, if the recall could not be managed well
• Need extra efforts to:
■ Determine the scope, nature and extent of recall,
■ Identify the affected products, and
■ Investigate the root cause,
■ Managing supplier, and
■ Managing consumers
■ Calculating the cost of recalling

• Based on study released by Deloitte, 58% of consumers who heard about product safety
and quality problems changed their buying habits. They did not purchase the product for
an average 9 months, increasing the likelihood that the product will be discontinued.

Advantages

• To get trust from customer

Case Analysis - Recall or Quiet?
KEEPING QUIET AND HANDLING SUPPLIER PRIVATELY

Disadvantages
• Possibility of information leaking, especially when the source of information was from
other party (one of Woolworths’ primary dairy supplier). The consequences will be
enormous if it is not handled properly.
• It will also affect consumers’ trust, because it against Woolworth’s internal policy, which
stated that “If a product does not meet Woolworths stringent criteria, it is removed from
the shelves.”

Advantages
• No need to spend unnecessary cost to recall the product
• No need to spend a lot of efforts in recalling products
Case Analysis - Recall or Quiet?
• In this case, the cost of recalling the product may be huge, BUT the
reputation risk when the issue leak to public is immense. Consumers will
doubt quality of other products sold by Woolworths and will jeopardize the
business sustainability.

• As the Company’s claim since the beginning, the critical thing to Woolworths
success was the drive to build lifetime relationships with its customer.

• Management constantly emphasizes that its reputation hinged on the quality

and integrity of the products it sold.
Case Analysis - Actions to The Supplier
• Woolworths’ Competitive Advantage: Superior Quality → believed that the quality
of its suppliers is an integral part of its attempt to be South Africa’s largest retailers

• Woolworths buys the materials from selected suppliers only, who prepared
products specifically for Woolworths

• Supplier selection is imperative process in Woolworths:

➢ Firstly, suppliers needs to have a similar value base and vision with the company
➢ Assess other criteria, such as factory size, hygiene, good labour practices, and
financial stability
➢ All suppliers have to adhere to the Woolworths Supplier Code of Business
Principles covering legal, ethical and environmental requirements.
➢ Each suppliers also independently audited to ensure compliance with the code.
➢ Woolworths also carries out regular food, hygiene and safety audits with all of its
food suppliers.

• Woolworths has various functions in management to monitor, control and measure

it supply chain at every interval. It has a clear and defined product approval process
including factory auditing (quality requirements), product testing and inspections. In
cases of non-compliance with any aspect of hygiene and safety, corrective action
was taken and the company monitored the suppliers’ progress carefully thereafter.
Case Analysis - Actions to The Supplier
• Taking into account the excellent practice of supplier management in Woolworths, it still
fail to detect the existence of gelatine substance in its yoghurt product line because the
ingredient was contained in raw materials supplied by Woolworths’ second-tier supplier.

• From purchasing process point of view, PO document is the buyer’s offer and becomes a
legally binding contract when accepted by the supplier. Thus, it has become the supplier’s
obligation to provide buyer with the specification of items ordered. The supplier must
not change the specifications of the materials without buyer’s knowledge and approval.

• Even though there is some unavoidable reason for changes, such as the lack of raw
material needed, suppliers need to communicate it first with their customer (in this case,
Woolworths) and get Woolworths’ acknowledgement and approval, before production.

• Referring to this, Woolworths has the right to stop doing business with the dairy
product supplier or even sue the supplier as they have breached the agreement of the
product quality.
CONCLUSION &
RECOMMENDATIONS
Conclusion and Recommendation
• Woolworths performs excellent Supply Chain Management starting from
selecting suppliers, developing suppliers, managing, and controlling all activities
involved in sourcing and procurement. However, Woolworths has not extended
the span of its supply chain to include second-tier supplier.
• Woolworths also maintains good relationship with its customers by always
strive to deliver best quality products that are environmentally and socially
conscious.
• Unfortunately, due to sourcing issues in its second-tier supplier, Woolworths
has to face the possibility of negative reputation.

We recommend the company to recall the “gelatine-yoghurt” product from

market and take several actions to supplier. Although the cost of recalling the
product may be huge, the reputation risk when the issue leak to public and not
handled properly can be enormous.
 The Direct Cost of a Recall :
1. Assembling the crisis team
2. Removal of the product from
the market, which includes:
Issuing notifications to
Regulatory bodies, Businesses
affected in the supply chain, and
Consumers
Collecting the product from
warehouses, retailers and
● Utilize contact centre for customers wishing to report issues or return the yoghurt and making
consumers
sure that it is followed-up to be cared.
Storage of the recalled product
● Hold press release with media and charity event donating the recalled yoghurts to reiterate to
Destruction of the product
public that despite the gelatine content, the yoghurt was perfectly safe and nutritious.
3. Investigation of the root cause
● Recover yoghurt brand image issue by contact the halal organization, Jewish, and vegetarian
of the factor that caused the
society to make them aware of the recall and try to regain their trust in Company’s commitment
recall
to ensure that the upcoming yoghurt will be gelatine-free.
4. Managing the PR to inform
● Displaying lists of products recalled in the last 12 months in Woolworths website and to keep
customers and protect the
them informed of any issues with products resulting in withdrawals and recalls.
business reputation
● Maintain close relationship with media.
Several actions to supplier:
★ Perform a detailed root-cause analysis of supplier performance issues.
★ Supplier performance improvement. Set up meeting with problematic supplier to share and
integrate action plans for performance improvement. Collaborate in action planning and
performance improves as a result. Make Supplier Corrective Action Form.
★ Review suppliers contract to see whether the company have agreed upon compensation it
may receive from the supplier not meeting the SLA. This compensation shall minimizes total
cost of recalling the products.

Prevent the quality failure in the future:

➢ Perform make-or-buy analysis to determine whether to perform in-house production or
outsourcing.
➢ Seek for a new gelatine-free supplier, or work with existing supplier to produce non-gelatine
materials in the future.
➢ Manage supplier base enlisting the suppliers which fulfills criteria set by Woolworth.
➢ Continuous monitoring and additional routine check not only for harmful microorganisms
and pathogens, but also for prohibited ingredients such as gelatine. Require second tier
suppliers to do so.
➢ Evaluate Woolworths’ Supplier Management to ensure all entities in its supply chain share
the same vision and principles in doing business.
➢ Insert a strict clause on the agreement regarding breach of contract and SLA.
LESSON
LEARNED
❏ Companies should place huge emphasis in its supply chain management spans from local firms’
suppliers and down to its customers.

❏ Managing supplier relationship involves activities of selecting suppliers, maintaining suppliers

base, performing supplier evaluation and supplier development. While managing good
customer relationship demands understanding customer behaviour and values to be able to
delivered products that meet their expectation.

❏ Maintaining supplier base to mitigate the risk of being over-reliance on its primary supplier. In
case of suppliers failure in delivering the promised products, the company has a back-up plan
for maintaining sustainability.

❏ Supplier Management comprising of supplier development and supplier evaluation is

important to make sure product quality. Not only to its first-tier suppliers, companies should
also consider to extend its supply chain management to include its second-tier supplier so
companies will know where the raw material were obtained, the process of converting raw
materials to product, and the way their suppliers are doing business.

❏ To prevent suppliers from doing unethical practices, companies should insert breach clause in
the agreement, state the desired service level agreement and follow up of the implementation.

❏ Companies should prioritize customers, not only by delivering the best quality product, but
also to maintain lifetime relationship with consumer by delivering promises.

❏ Companies should be transparent by disclosing real situation to its customers in case of

product failure or issue.
THANK YOU!