Australian retail supply chains today must be capable of managing increasing customer expectations (lead-times, pricing, options), channel diversification (online, store, multi-channel, omni-channel) as well as increasingly complex product sourcing strategies. There are few decisions in an executive’s career which can define one’s stewardship as a success. In today’s economic climate, where company boards are more cost conscious, increasingly such opportunities are emerging from significant supply chain investments with complex and sensitive payback timetables stretching over several years.

1. PART ONE: Perspective on
Strategic Investments
GRA Retail Supply Chain Series Whitepaper

2. Part 1 of 4 – Perspective on Strategic Investments
© GRA 2015
Australian retail supply chains today must be capable of managing
increasing customer expectations (lead-times, pricing, options), channel
diversification (online, store, multi-channel, omni-channel) as well as
increasingly complex product sourcing strategies.

3. 3
James Allt-Graham, Partner – GRA Sydney
For the last 20 years, James has helped organisations in Asia and Australia deliver rapid and sustained
performance improvement through the practical application of leading processes, systems and a high
performance culture. James has worked with clients in the commercial and government sector and has a
focus on engaging executives, agreeing a direction and driving transformation. Within professional services
James has held senior roles as Head of People for a 5,000 person organisation and as the Senior Partner
responsible for the Risk Consulting practice consisting of over 700 professionals. He has served on
international projects for clients, steering groups and has been responsible for running a regional business.
Luke Tomkin, Partner – GRA Melbourne
Luke is a Partner with GRA and throughout his career has helped organisations in South East Asia and
Australasia deliver rapid and sustained inventory reductions, service level improvements and supply chain
cost reductions through the practical application of leading supply chain processes, techniques and systems.
Luke is responsible for the delivery of excellent service to clients in the context of their needs and working to
produce new solutions which create value to the client. He has worked with companies at both the strategic
and operational levels to deliver results in the areas of supply chain network design, IT strategy and systems,
demand and supply planning, inventory optimisation, customer service delivery, operational and tactical
planning.
Shanaka Jayasinghe, Senior Consultant – GRA Sydney
Shanaka has proven experience in assisting clients design supply chain strategy as well as identify and
practically leverage service improvements and cost reductions in the supply chain. Shanaka has been deeply
involved in successful client engagements extending across the key strategic initiatives outlined in this
presentation – (1) physical network & flow optimisation, (2) Supply Chain & Merchandise Planning and (3)
Enabling Integrated Frameworks (S&OP). Shanaka is passionate about presenting complex ideas to clients
with any level of technical background.
About the authors

4. What we do know is customer expectations have increased
over the last decade, influenced primarily by what ecommerce
has delivered in greater information transparency, lower costs of
communication and an rise in information processing capability –
all for the consumer!
For Australian retailers specifically, the supply chain
challenges in this changing environment are substantial… With
lower population densities, smaller markets and an expansive
geographic distribution of customers, the solutions overseas
often aren’t as effective here…
So the typical Australian retailer needs to be able to do more with
less, in an setting that inherently has significant supply chain
complications. We at GRA believe major structural change
is upon Australian retailers.
© GRA 2015 4
Executive Summary
Evidence of this change is printed everyday in
Australian newspapers. Board executives are all
too aware of the urgency in adaptive survival.
Like Australia’s manufacturing industry which
faced a fight or flight predicament, Australian
retailers are now fighting to remain relevant
amongst new international entrants such as Zara,
ALDI, Costco, H&M and Topshop. Responding to
these threats, major Australian Retailers such as
Super Retail Group, David Jones, Coles and
Metcash have all indicated to shareholders that
their strategic plans involve significant supply
chain restructures. These boards have are
prepared to invest in the short term to realise
long term sustainable growth.
Today, the Australian Retail sector is shadowed by an unprecedented amount change and uncertainty.

5. Such investments however come with large capital
investment exposure as well as in some instances medium
to long payback periods - these investment decisions
thereby can become turning points in a company’s life.
Get it right and you’re set.
The purpose of this series is to advise Australian retailers on
how to analysis and decide upon the right course of action;
what steps need to be taken to ensure the right investment
is made to protect the business and build a foundation for
ongoing growth without risking the farm?
© GRA 2015 5
The four edition series includes;
(1) Perspective on strategic investments
(2) Physical network & flow optimisation
(3) Supply Chain & Merchandise Planning
(4) Enabling Integrated Frameworks (S&OP)
Executive Summary

6. k
There are few decisions in an executive’s career which can define one’s
stewardship as a success. In today’s economic climate, where company boards are
more cost conscious, increasingly such opportunities are emerging from significant
supply chain investments with complex and sensitive payback timetables stretching
over several years.

7. The Retail Supply Chain
- Perspective

8. © GRA 2015 8
To assist executives’ preparation for such high-stakes decisions, this
presentation outlines three topical supply chain investments which if
implemented effectively can substantially transform an organisation's supply
chain into a competitive advantage.

9. © GRA 2015 9
Strategic Investment
Physical
Network &
Flow
Optimisation
Supply Chain &
Merchandise
Planning
Enabling Integrated
Frameworks (S&OP)
Investment
Type
Description
Improvement
Target
Payback Timetable
Physical Network
& Flow
Optimisation
 Model and optimise the physical network
responsible for warehousing and logistics
execution as well as flow design.
 Identifies opportunities to lower operating
costs whilst delivering to the customer value
proposition effective. This typically involves
analysing freight, and fixed and variable
storage cost benefits.
 Warehousing and
Logistics Operating
Costs
 Asset Utilisation
 Customer (service
driver)
 Immediate benefits
often include freight
costs and service level
improvement
 2-3 year payback for
labour efficiency
savings/asset
utilisation
Supply Chain &
Merchandise
Planning
 Merchandising and Supply Planning in retail
is critical for supply chain effectiveness, and
a key driver of operating costs.
 Business processes and planning software
need to be fit for purpose. A clear
development road map should be in place.
 Effective implementation is often the most
significant challenge with this form of
investment.
 Sales
 Working Capital
 Gross Margin
 Operating costs
 Immediate payback in
increased service
levels and working
capital efficiency
 Enabler greater supply
chain visibility and
enhanced decision-
making (e.g. strategic
procurement
decisions)
Enabling
Integrated
Frameworks
(S&OP)
 End to end visibility across functional
alignment are essential for retailers,
particularly when making portfolio,
merchandise or supply chain decisions.
 S&OP (or M&OP) provides the structure to
coordinate the various functions in an
organisation work together through
structured and regular meetings. More
sophisticated S&OP processes instil a culture
of accountability and prompt forward
thinking in decision-making.
 End-to-End Value
Chain
 Agile & Informed
Decision-making
 Cross-functional
alignment
 Medium to Long-term
payback designed to
enable sustained
competitive advantage
in an organisation
 Enables agility to
changes in operating
environment.
Perspective – Strategic investments

10. Shareholder
Value
Revenue
Growth
Fixed
Capital
Efficiency
Operating
Cost
Reduction
Working
Capital
Efficiency
© GRA 2015 10
Revenue Growth: A retailer’s supply chain activity does not only generate
cost, it also generates revenue through the provision of service and
availability.
An investment in network design for instance can increase responsiveness,
shortening lead-times and ultimately attract more customers and drive
market share.
Similarly, an investment in merchandise and supply planning can improve
availability of the right product in the right place at the right time –
thereby driving sales revenue. There have been several studies such as
the “which product should you stock” (2012 – Harvard Business Review)
that have shown strong positive causality exists.
Fixed Capital Efficiency: The supply chain by nature is fixed asset
intensive. A supply chain includes warehousing, trucks, materials handling
equipment, IT infrastructure and automation - all considerable investments.
A key driver for the rise of third party logistics providers has been the
desire of management to reduce fixed asset investment and associated
overhead on the balance sheet – however it is all balance. Such strategies
should recognise the opportunity costs of outsourcing; often
overlooked is the loss of capability to drive ongoing efficiency gains in the
supply chain in a 3PL environment.
An evident trend GRA is seeing today is company’s wanting to find the right
balance when rationalisation distribution networks and production facilities
to optimise operating costs - particularly freight when servicing Australia’s
far-reaching customer base.
What to consider when investing in the supply chain
Perspective – Strategic objective
Strategic Objective

11. Shareholder
Value
Revenue
Growth
Fixed
Capital
Efficiency
Operating
Cost
Reduction
Working
Capital
Efficiency
© GRA 2015 11
Operating Cost Reduction: A significant portion of a business’s operating
costs can be attributed to the supply chain. Thereby supply chain operating
cost reduction has great potential to improve overall business performance.
The physical network (distribution centre) operating costs can be general
grouped under freight, fixed (leases, outgoings) and variable (salaries,
wages) costs. Each dollar saved goes directly to profit.
Additionally, if we can improve inbound or landing costs by restructuring
activities such as allocations or labelling in upstream logistics – we can
effectively improve gross margin.
Working Capital Efficiency: Typically for retailers, inventory accounts for
~50% of assets on the balance sheet. Thereby, any improvement in
inventory efficacy through better planning and execution results in a
healthier working capital ratio and balance sheet. Moreover, this has
flow-on benefits as the reduction in obsolescence and risk can additionally
improve gross margin.
Today, inventory management could not be more crucial to a retailer’s
success. As customer expectations increase, channels diversify and product
sourcing strategies become more complex the traditional merchandise &
demand planning and replenishment methodologies place businesses at risk
of becoming too ‘fat’ or missing vital sales.
What to consider when investing in the supply chain
Perspective – Strategic objective
Strategic Objective

12. © GRA 2015 12
Strategic ObjectiveStrategic Investment
Physical
Network
Optimisation
IT – Demand &
Replenishment
Planning
Aligning the investment with the return objective…
Shareholder
Value
Revenue
Growth
Fixed
Capital
Efficiency
Operating
Cost
Reduction
Working
Capital
Efficiency
Perspective – Return on investment

13. Strategic Investment
© GRA 2015 13
Sales & Operations Planning
(S&OP)
Supply chain decisions have impacts across the entire business and the
outcomes have immediate and direct influence on service levels, cash flow
and profitability.
Leading organisations recognise this and are better integrating their supply chains with
the strategic goals of their business. Sales & Operations Planning (S&OP), or
Integrated Business Planning (IBP), is a proven methodology organisations turn to, or
in many cases reinvigorating, to enable this. S&OP, through enhancing responsiveness
as well as forward visibility is able to establish sustainable competitive advantage.
 S&OP is a framework which enables value to be derived from the ‘planning
capability’ of an organisation. Consider the ‘planning capability’ to be an
organisation’s people, process, systems and data. At an organisational level, S&OP
aligns this ‘planning capability’ with the business and supply chain strategy. And at a
functional level, S&OP leverages the ‘organisational structure’ encouraging team
members to collaborate and work towards the achievement of organisational goals.
Effective S&OP enhances the decision-making quality in a business by providing
visibility and agility in portfolio, demand, supply and logistics management. It is a well-
established, proven framework; however, many large organisations have difficulty in
effectively leveraging its benefits – primarily due to poor execution of S&OP meetings
and poor inputs into those meetings from the fundamental planning processes.
Executive
Engagement
and Ownership
Business &
Supply Chain
Strategy
Policy, KPI's &
Incentives
Framework to pull it all together…
Perspective

14. © GRA 2015 14
Service level
Supply chain
efficiency
(inventory,
warehousing
and transport)
Inventory
Cash to cash
cycle
Availability &
responsiveness
Physical
footprint &
utilisation
Sales revenue
Cost
Cash
Accounts
receivable/
payable
Inventory
Fixed assets
Capital
employed
Profit
Return on
investment
Strategic ObjectiveStrategic Investment
Physical
Network
Optimisation
IT – Demand &
Replenishment
Planning
Sales & Operations Planning
(S&OP)
Generate shareholder value through increasing return on investment
Perspective

15. © GRA 2015
At GRA we understand the complex challenges retail organisations are facing
We can help you with not only designing an optimal retail supply chain, but also
ensuring that your inventory is optimised to ensure that the highest possible service
levels can be achieved at the lowest possible cost.
Contact us
Melbourne (03) 9421 4611
Sydney (02) 9810 0229
www.gra.net.au
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