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Woolworths-Final kory

VIEWS: 8 PAGES: 31

									Woolworths “Chips” Away at Inventory
 Shrinkage through RFID Initiative

                          Xinjuan Zhou
                          Robert Wilson
                        Theresa Burgmeier
                          Kory Beidler
           Pilot Project

•Increased visibility of the movements
 of tagged dollies
•Increased security of both product and
 distribution assets
 Tracking in Distribution Center
 Automated storage and retrieval
                                           Totes with barcodes
 system / Pick to light system




Dolly with RFID tags        Dispatch bay     Dollies loaded onto trucks
                     Tracking to Store
Truck locked w/ security code          Truck equipped w/ GPS


System lets the driver know            Store manager electronically
what is to be delivered                signs that order was delivered


Handheld uploads information back to          Data forwarded to Smart
Transportation Management Center              Chain platform
    Benefits seen from Pilot Program
•   Shrinkage
•   Bookstock Accuracy
•   Reduced Labor Costs
•   Asset Management
•   Transport Efficiencies
•   Identification of future RFID applications
Do we continue use the RFID
       technologies?

 Do we expand use of RFID
  throughout Woolworths?
Cost vs. Savings
          Cost of Deployment
• Estimated cost of £2-3 million
• Same cost of opening one new store
• Where would this money better be spent?
              Hardware Costs
• Tags for 100,000 roll cages, readers
  for distribution centers, and units
  for delivery drivers
• Paid £8 for tags during the pilot
  program, cost could be reduced to
  £5 or less
Hardware Costs (cont.)
   • Bay readers, signposts, and
     handheld readers for drivers will
     cost £500,000
   • Total cost ≈ £1,000,000
   • Computer hardware upgrades
     – Worst case - £1.2 million
     – Best case - £1 million
   Software Costs
• Estimated £400,000 for
  integration of total system software
• Pilot program utilized most of the necessary
  software, new software will be minimal
• Computer software upgrades
  – Worst case - £480,000
  – Best case - £400,000
           Equipping Vehicles
• Delivery fleet will need to be updated
• Trucks will have GPS-enabled performance
  monitoring and reporting capability
• Total cost of the vehicle implementation is
  estimated at £1,000,000
• Vehicle system upgrades
  – Worst case - £1.2 million
  – Best case - £1 million
           Things to Consider
 • RFID implementation costs = 8% - 12% of
       Woolworth’s net income in 2003
                • Hidden costs?
• Is this plan feasible to implement in one year?
Where will the savings come from?
  Reduced Supply Chain Theft/Loss



• Assign inventory accountability to each participant.
  – Deterrent effect
  – Evidence for criminal investigation
• Reduction in theft of merchandise (£75 million)
  – Worst case – 2% reduction = £1.5 million
  – Best case – 40% reduction = £30 million
     Improved Vehicle Utilization
• Vehicle Telemetrics System
  – Prolonged vehicle lives and reduced
    vehicle downtime
  – Transportation cost could be reduced
    by 8-10%
  – Share the investment and savings with
    the strategic transportation partner
• Reduction in transportation (£100 million)
  – Worst case – 5% of £8 million = £0.4 million
  – Best case – 20% of £10 million = £2 million
      Improved Asset Utilization
• Roll cages were expensive
  distribution assets, costing £100 .
• Better asset tracking would save
  at least 2,500 cages each year.
• Reduction in lost/damaged cages
  – Worst case - £100 per cage x 1500 = £150,000
  – Best case - £100 per cage x 3500 = £350,000
           Reduced Paperwork
• Electronic tracking and signature system
• The estimated savings in the paper
  forms purchased and staff reductions
  are £350,000 per year.
• Savings from resolving errors with
  manual data entry
• Reduction in paper work and office staff
  – Worst case = £200,000
  – Best case = £350,000
     Inventory and Availability
• Inventory levels followed seasonal cycles.
• With a more accurate stock count,
  availability could be improved or
  safety stock lowered or both.
• Increase in availability could
  translate into increase in sales,
  according to the retail studies.
   Inventory and Availability (cont)

• Additional sales from better availability
  – Worst case – 0.5% in availability = 0.25 – 0.5% in sales
     • 2004 Forecast = £3 - £7 million sales increase
  – Best case – 5% in availability = 1.25 – 2.5% in sales
     • 2004 Forecast = £36 - £71 million sales increase
• How do these savings and expenses affect the
     balance sheet and income statement?

    • What about affecting ratio analysis?

        • What about 2004’s forecast?
     Woolworths Income Statement Data:
                                          (£ in millions)
                         Woolworths Income Statement Data: (£ in millions)
                                                              52 Weeks      52 Weeks      52 Weeks
                                                 Forecast      Ending         Ending       Ending
                                                02/01/2004    02/01/2003    02/01/2002    02/01/2001
Total Revenue                                    £    2,839     £   2,717     £ 2,599       £ 2,525
Cost of Revenue, Total                           £    2,030     £   1,943     £ 1,850       £ 1,764
Gross Profit                                     £      809     £     774     £     749     £     761
Selling, General, Admin. Expense, Total          £      755     £     723     £     722     £     678
Total Operating Expense                          £    2,788     £   2,669     £ 2,632       £ 2,456
Operating Income                                 £       51     £      48    -£      33     £      69
Income Before Tax                                £       41     £      38    -£      47     £      54
Income Tax - Total                               £       14     £      13     £       2     £      14
Income After Tax                                 £       27     £      25    -£      49     £      41
Net income                                       £       27     £      25    -£      48     £      41


NOPAT: Operating income * (1-tax rate %)          £     34     £      32     -£     34      £     51
Net financial expense (NFE): NOPAT - NI           £      7     £       7      £     14      £     10
            Woolworths Balance Sheet Data:
                                           (£ in millions)
                              Woolworths Balance Sheet Data: (£ in millions)
                                                 04 Forecast    1-Feb-03       1-Feb-02    1-Feb-01
   Total Current Assets                             £    734     £    638       £    563    £ 2,926
   Property, Plant, Equipment - Net                 £    333     £    333       £    346    £    338
Total Assets                                        £ 1,086      £ 1,039        £    979    £ 3,354
   Total Current Liabilities                        £    497     £    477       £    429    £    606
Total Liabilities                                   £    623     £    603       £    551    £    632
Total Equity                                        £    463     £    436       £    428    £ 2,721
Total Liabilities & Shareholders' Equity            £ 1,086      £ 1,039        £    979    £ 3,354


Total Operating Assets                              £   1,086    £   1,039     £    979    £   3,354
Total Operating Liabilities                         £     525    £     505     £    454    £     632
Net Operating Assets                                £     561    £     534     £    526    £   2,721

 Ave. Net Operating Assets (Ave. NOA)               £     548    £     530     £   1,624
 Ave. Net Financial Obligations (Ave. NFO)          £      98    £      98     £      49
 Ave. Stockholders' Equity (Ave. SE)                £     450    £     432     £   1,575
 Ave. Total Assets (Ave. Tot. Assets)               £   1,063    £   1,009     £   2,167
                Woolworths Ratio Analysis:
                                Woolworths Ratio Analysis:
                                                               2004     2003    2002
1. Net operating profit margin (NOPM): (NOPAT / Sales)          1.20%   1.18%   -1.31%

2. Return on net operating assets (RNOA): (NOPAT / Ave. NOA)   6.21%    6.04%   -2.09%

3. Financial Leverage (FLEV): (Ave. NFO / Ave. SE)             0.22     0.23    0.03

4. Net Financial Rate (NFR): (NFE / Ave. NFO)                  7.14%    7.14%   28.57%

5. Spread: (RNOA - NFR)                                        -0.93%   -1.11% -30.67%

6. Return on Equity (ROE): (NI / Ave. SE)                      6.01%    5.79%   -3.05%

7. Return on Equity (ROE): (RNOA + (FLEV*Spread)               6.01%    5.79%   -3.05%
                Total Savings
• Worst Case                   • Best Case
  – COGS ↓ £1.5 million          – COGS ↓ £30 million
  – Expenses ↓ £0.75 million     – Expenses ↓ £2.7 million
  – Sales ↑ £3 million           – Sales ↑ £71 million


                Total Expenses
• Worst Case                   • Best Case
  – Expenses ↑ £2.88 million     – Expenses ↑ £2.4 million
                  Woolworths Balance Sheet
                                 Worst Case / Best Case:
                                           (£ in millions)

                                            1-Feb-03    04 Forecast   Worst Case     Best Case
   Total Current Assets                      £    638      £    734   £       735   £       805
   Property, Plant, Equipment - Net          £    333      £    333   £       335   £       363
Total Assets                                 £ 1,039       £ 1,086    £     1,088   £     1,187
   Total Current Liabilities                 £    477      £    497   £       497   £       497
Total Liabilities                            £    603      £    623   £       623   £       623
Total Equity                                 £    436      £    463   £       465   £       564
Total Liabilities & Shareholders' Equity     £ 1,039       £ 1,086    £     1,088   £     1,187


Total Operating Assets                      £   1,039     £   1,086   £     1,088   £     1,187
Total Operating Liabilities                 £     505     £     525   £       525   £       525
Net Operating Assets                        £     534     £     561   £       563   £       662
            Woolworths Income Statement
                               Worst Case / Best Case:
                                          (£ in millions)
                                           52 Weeks
                                            Ending        Forecast
                                           02/01/2003    02/01/2004    Worst Case    Best Case
Total Revenue                                £ 2,717      £    2,839    £    2,842    £ 2,910
Cost of Revenue, Total                       £ 1,943      £    2,030    £    2,029    £ 2,000
Gross Profit                                 £     774    £      809    £      814    £    910
Selling, General, Admin. Expense, Total      £     723    £      755    £      757    £    755
Total Operating Expense                      £ 2,669      £    2,788    £    2,789    £ 2,758
Operating Income                             £      48    £       51    £       53    £    152
Income Before Tax                            £      38    £       41    £       43    £    142
Income Tax - Total                           £      13    £       14    £       14    £     48
Net income                                   £      25    £       27    £       29    £     95
                  Woolworths Ratio Analysis
                                  Worst Case / Best Case:
                                                                2003     2004    Worst Case   Best Case
1. Net operating profit margin (NOPM): (NOPAT / Sales)         1.18%    1.20%      1.25%        3.49%

2. Return on net operating assets (RNOA): (NOPAT / Ave. NOA)   6.04%    6.21%      6.48%       16.96%

3. Financial Leverage (FLEV): (Ave. NFO / Ave. SE)              0.23     0.22       0.22        0.20

4. Net Financial Rate (NFR): (NFE / Ave. NFO)                  7.14%    7.14%      6.80%       6.80%

5. Spread: (RNOA - NFR)                                        -1.11%   -0.93%     -0.32%      10.16%

6. Return on Equity (ROE): (NI / Ave. SE)                      5.79%    6.01%      6.41%       18.95%

7. Return on Equity (ROE): (RNOA + (FLEV*Spread)               5.79%    6.01%      6.41%       18.95%
               Considerations
•   Employee Training
•   RFID Tags on Totes
•   Locking / Unlocking Cages
•   Continual Upgrade Cost
•   Set an Implementation Time & Process
      Final Recommendation
Due to the success of the pilot RFID program
and the likely benefits just reviewed, it is our
recommendation that Woolworths (UK)
implement a RFID program across our entire
distribution and transportation supply chain.
– Based on 2004 company sales forecasts.
– To be completed within one year.
Questions / Concerns

								
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