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How supply chain improvements pulled Kmart from brink of bankruptcy

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article image DSS helped Kmart streamline operations, and reduce costs.
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Five years ago, Kmart Australia was on the verge of bankruptcy. Today, the company is one of the most profitable retailers in Australia – a turnaround credited in large part to their supply chain.

The original Kmart stores were set up in Australia in 1968 as a joint venture with the Kmart group in the US. Today, they are 100 percent owned by Wesfarmers and the name is used under a long-term licensing agreement.

In 2008, the retailer was in trouble, caught in the midst of a recession with zero profit.

That same year, Managing Director Guy Russo was hired to lead the turnaround of the struggling company.

Russo set about reducing costs and optimising product selection, but also displayed clear focus, leadership and a strong strategy, which led to a complete overhaul of Kmart Australia’s sourcing and supply chain process.

At the core of the overhaul is a philosophy to have the lowest end-to-end cost – thinking which extends throughout the business, and informs their consumer-facing tag line of “low prices every day”.

Thus, changes were made not just to store layout and product mix, but also to streamline the supply chain, increase direct sourcing, focused more on increasing volumes and working with suppliers to innovate and bring prices down.

By implementing a lean methodology, and using a range of supply chain processes such as pick and pack, where they reduced the carton sizes and lowered shipping costs, Kmart succeeded in reducing supply chain costs by over $60 million.

To drive their sourcing initiative Kmart implemented a Direct Sourcing System (DSS) utilizing Core Solutions’ CBX extended supply chain software platform.  

This system helped Kmart to streamline their operations, reduce costs and triple the volume of direct sourcing without a corresponding increase in headcount.

This system played an instrumental role in helping Kmart Australia execute on a strategy which took them from zero profit in 2008 to one of the most profitable retailers in Australia. Today, it is a $4 billion business, with a 2012 operating profit of $300 million.

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