The Pulse of Profitability: JB Hi-Fi's Supply Chain Exploration
- Olivia Matthews
- Oct 23, 2023
- 12 min read
This report provides a comprehensive analysis of JB Hi-Fi group’s supply chain management, which encompasses JB Hi-Fi, the Good Guys and Tech solutions service business operating in Australia and New Zealand. The report begins with a general overview of the group and its business operations. It then enters into a more in-depth discussion of the company’s supply chain management and its key features. This report presents a critical analysis of their Forecasting and Demand Planning and Managing Inventories Capabilities and practices. The analysis suggests that due to the success of the business has had to navigate through unforeseen circumstances that its current practices are able to be resilient. Strong assets within the business operations as they allow for the business to generally accommodate customer demand through the utilization of operations management teams and artificial intelligence and allocate their resources in an efficient manner through ABC segmentation and inventory tracking systems such as their POS. The company’s use of technology, centralized warehouses and the value placed on staff’s importance in selling their products has contributed to their success in a highly competitive market. However, this report provides recommendations on areas to improve the business activities and an analysis of how the business works towards its sustainability goals. Overall, the report concludes that JB Hi-Fi has cemented its position within the market by creating an effective supply chain that enables them to position itself in customer’s eyes as high quality, strong customer service and competitively priced business.
JB HI-FI Group brings together two of Australia’s well-known retail brands: JB HI-FI and the Good Guys. JB HI-FI Group is one of Australia’s leading retailers of electronics that is currently listed within the Australian Securities Exchange and is included in the s&P/ASX 200 index (JB Hi-Fi, 2023). The company is best described as a retailer of an extensive line of electronics such as phones, cameras, home entertainment equipment and other related products, in addition, they provide consulting services and information technology through its JB HI-FI Solutions business (JB Hi-Fi, 2023). JB Hi-Fi currently distributes goods through approximately 316 stores across the network in New Zealand and Australia but is also accompanied by a strong online retailor presence.
JB Hi-Fi functions within a highly competitive landscape with retailers such as Harvey Norman, Amazon, Office Works, Facebook Marketplace, and an abundant amount of online-based offshore marketplaces (Jb Hi-Fi (2023). This competition is counteracted through their strategy to maintain a strong competitive stance within the market by having reliable customer service, multi-channel offers, an extensive product line, quality store locations, strong supplier partnerships and competitive prices (JB Hi-Fi, 2021). The group’s target customers are a broad demographic that has similar interests in integrating technology into their daily experience with an approach of evaluating the items they wish to purchase against its price, quality, and perceived value (JB Hi-Fi, 2021). In the last financial review published by JB Hi-Fi, in the past five years there has been a 3.5% growth in sales at the end of 2022 financial year bringing in $9.23 billion and an 8.8% growth in earnings per share price (JB Hi-Fi, 2022). Terry Smart is the current CEO of JB Hi-Fi group who has been newly appointed since August 2021 and has been an integral part of the success that the company has seen through being labelled one of the top retail CEOs in Australia. He works alongside the CEO of the Good Guys, Cameron Trainor and amongst other senior executives that are responsible for areas such as finance, operations, marketing, and distribution (JB Hi-Fi, 2022). JB Hi-Fi success has a strong outlook, with the state of the current environment becoming increasingly reliant on technological devices. Further, their continued focus on maintaining positive supplier relationships, strategic store locations selection and a focus on their online marketplace is the main predictors in JB Hi-Fi’s positive future longevity.
JB Hi-Fi group currently trades goods by creating an incredibly complex supply chain that integrates suppliers, warehouses, retail fronts and an online marketplace to deliver technological goods to their target consumers. The following section of this report will be a descriptive analysis of how JB Hi-Fi’s supply chain functions, highlighting the key processes involved such as forecasting and demand planning and managing inventories in supply chains as tools to maximise their business performance and maintain a responsive and reliable supply chain. Following this, the report will perform a critical analysis of the effectiveness of the supply chain practices.
According to JB Hi-Fis 2022 Annual Report its supply chain is an international operation that incorporates several different features of a supply chain. Firstly, as JB Hi-Fi is a predominately Australian-based company it operates a centralized warehousing system that uses data to distinguish the most efficient warehouse locations that allow for stock to be distributed in a cost-efficient and timely manner, with the main distribution warehouse being in the western suburbs of Melbourne(JB Hi-Fi, 2023). Therefore, the suppliers that are located predominately in the Asia Pacific mainly distribute their stock to the warehouses where from there they distribute goods directly to the customer or display them at their large retail fronts. JB Hi-Fi does not directly state their suppliers, assumingly due to fierce market competition, but looking through their catalogue brands such as Apple distribute from an array of countries within the Asia Pacific, similar to Samsung and Cannon (Supply Chain Channel (2023). Reflecting upon appendix 1.0 of JB Hi-Fis supply chain visually explains the process as to how the supply chain operates. They initially start the process by gathering information from previous sales and utilizing this to forecast the amount of stock they will need coming into a season or desired period (Bryne, T. (2018). Then from there, once the suppliers have produced the goods, they send them directly to the centralized warehouses that serve as a hub of their supply chain, where they use a complex system to receive, store and distribute. JB Hi-Fi’s insistence on maintaining strong positive relationships with their suppliers allows them to have confidence and trust in their ability to deliver the goods in the time frame that they have predicted they needed them, such as an increase in goods around Christmas time. Once the goods have been identified that they are needed at one of the retail stores across Australia and New Zealand or through their online store they distribute them through the Australian Post, cargo trucks or trains depending on demands (Bryne, T. (2018). By having a centralized warehouse system, the main aim is to have an in-depth understanding of the stock on hand, therefore creating an ability for the operations management teams to create a streamlined process that provides products to customers in an efficient manner, therefore increasing customer satisfaction whilst minimizing waste and lowering costs.
One of the essential elements to ensure the success of the JB Hi-Fis supply chain is their complex understanding of forecasting and demand planning. Demand forecasting can be a difficult task, as orders need to be made before several integral elements are known. Without calculating forecasting sales, companies can ultimately lose profit as they either will underestimate the market demand and lose customers to competitors, or they will overestimate and have a surplus of useless stock which will cause a loss in profit and have several negative environmental impacts (Kück, M. and Freitag, M. (2021). As we have just experienced in recent history after the Covid–19 pandemic, demand is highly volatile and can be almost impossible to predict as there are copious numbers of varying factors. These are but are not limited to the number of available substitutes, political, social, and economic environment, marketing capabilities, and societal trends (Kück, M. and Freitag, M. (2021). For example, JB Hi-Fi could not predict the dramatic increase in demand for technological devices, and home electronics due to people being kept at home and interest rates being set at low prices so there was an influx of demand for bulky goods such as fridges and televisions therefore selling out of stock and having a disconnect between what they could potentially supply and their current capabilities.
According to Kück, M. and Freitag, M. (2021) A typical demand planning process within a company consists of the following:
1. Data Acquisition and preparation
2. Statistical forecasting
3. Judgemental forecasting
4. Consensus forecasting
5. Release of the forecast
6. Evaluation and monitoring
At JB Hi-Fi they have employed supply management teams whose job description is to manage the complex workings of the machine that is the supply chain. This team uses complex data acquisition through shopping trends observed on their online websites, sales made through their point-of-sale systems and surveys. From this information, the team utilizes a newly appointed tool ‘V Net Solutions’ that helps take control of uncertain and variable demand signals by leveraging AI-driven supply chain planning software (V Net, 2023). Once this forecast was made JB Hi-Fi and approved by upper management and underwent thorough analysis to then be sent to a supplier for an order to be fulfilled. After the period of forecasting has been completed, they commit to an evaluation to measure the success of the initiative and take learnings to the upcoming period of forecasting.
In the words of Collier (2020), “Inventory management involves planning, coordinating, and controlling the acquisition, storage, handling, movement, distribution and possible sale of raw materials, component parts and subassemblies, suppliers and tools, replacement parts and other assets that are needed to meet customer demand.” This statement demonstrates that inventory management is no small feat to manage and control. As mentioned above, JB Hi-Fi has a complex means by which it deals with inventory. As it obtains its retail products from its suppliers, its inventory would mainly be considered finished goods inventory, which refers to completed goods that are ready to be distributed (Collier, 2020). This makes it significantly easier to distribute goods in a timely manner as they don’t need to add any elements to the stock before it can reach the customer. To monitor their finished goods inventory levels, they use their POS systems to track stock levels in real time. It tracks what has been sold in stores and online and sends a notification when it has hit a certain threshold to order more (Anderson, T. (2022). In addition to this, JB Hi-Fi also utilizes ABC analysis to classify their inventory to ensure efficiency when prioritizing products that make them more money (Collier, 2020). For example, A products are items that produce the most amount of profit for the business such as an Apple Air Pod, B products are mid-range sales such as televisions and C products would be in lower demand such as a vinyl record player. Classifying products, helps structure locations in the warehouse where items are located for ease of access and prioritization of goods that need to be ordered in surplus. In saying this, through the use of technology and ABC analysis, it still hasn’t been proven to be a flawless system.
There have been numerous reports from customers that have purchased items online under the impression that the stock was ‘in stock’ only to be informed later that the item was out of stock, and they won’t be able to obtain it for a prolonged period. This caused issues as refunds had to be made, and generally, they felt like they had been a victim to bait advertising therefore in the future losing customer retention and a tarnished brand reputation(MYKI2009, 2021). This can be pinpointed to the potential of the technology that is utilized to manage stock levels not giving true-time reports which leads to real customer dissatisfaction.
JB Hi-Fi, a leading electronics retailer, is arguably functioning under a sustainable business model. To prove this statement, it is important to look at sustainability in a holistic approach. Sustainability broadly defined through the lens of business is “The pursuit of a business growth strategy that creates long-term shareholder value by seizing opportunities and managing risks related to the company’s environmental and social impacts.” (Hedstrom, G.S. (2019). Further, to consider sustainability it must encompass three basic elements that are referred to as the triple bottom line: People or social responsibility; community involvement, health, and safety management, shareholder relationships, people training, labor and workplace conditions, Profit or strategy and execution; economic sustainability and longevity of the business and Planet or environmental stewardship; management of environmental impacts, and general protection of the natural environment (Goodall, 2012).
Now to apply and analyse those elements of sustainability to JB Hi-Fis operations. When assessing their Annual Sustainability Report (JB Hi-Fi Limited, 2022) in terms of their social responsibility they highlight this as their key focus “Our people are our most important asset and their health, safety, well-being and engagement will always be our key focus.” (JB Hi-Fi Limited, 2022). This is achieved through creating a Group National Safety Strategy that comprises four key pillars: employee well-being, Injury prevention, and safety compliance. With these pillars, they implemented measurable goals that are the essential aspect as to how JB Hi-Fi can prove that they are a sustainable business as it enables them to have metrics to decipher what action plans are effective and what needs amending. For example, as they are heavily reliant on suppliers for their business model, they implemented an ‘Ethical Sourcing Framework’ which essentially encapsulates all three pillars of sustainability in one initiative. The policy commits to ethical sourcing practices within its supply chain, by aiming to have all the products it sells produced in a socially and environmentally friendly manner by screening potential suppliers on surveys and investigations (JB Hi-Fi, 2022). This, therefore, improves all their sustainability pillars as it shows to stakeholders that they are consciously trying to have a good impact on the world, therefore, making consumers more likely to interact with their brand whilst actively making positive social and environmental decisions (JB Hi-Fi, 2022). Although in theory, this proposed framework is highly effective, there is still room for corruption and the actual checkpoints that JB Hi-Fi set their ethical standards can become quite troublesome. In the section of the report, it states that they alter their standards depending on the country and product that they are sourcing their specific product from, which adds a layer to the issue as they are trying to improve human rights and ecological impacts, it suggests that human rights, ethical codes and environmental are based on specific geographical and political environments. Therefore, leaving a potential room for ambiguity of their overall general sustainability score.
A relationship that a retailer has with a supplier that embodies strong communication, reliability, fairness, partnership, and commitment to sustainability is essential in the succession of a business (Hussain et al. 2017). Without a positive relationship, it can lead to disruptions within the supply chain which ultimately will be a thorn in the side of any retail business, including the JB Hi-Fi group. JB Hi-Fi does not publicly disclose its supplier list, assumingly due to a desire to keep a competitive advantage over the current companies in its space. The JB Hi-Fi website advertises that it sells items from Apple, Samsung, Canon, LG, Go Pro and much more which could be concluded that those brands would be direct suppliers, but this cannot be directly confirmed (JB Hi-Fi, 2023). During the height of the Covid-19 pandemic CEO Terry Smart, expressed concerns surrounding the reliability of goods being shipped to Australia from international suppliers. Due to the exponential wait time that consumers were faced with for bulkier items such as fridges and washing machines, it created a negative perception of JB Hi-Fi in the eyes of consumers, therefore deterring some sales (Bencic, 2021). This ultimately demonstrates the importance of a relationship that promotes reliability with suppliers and the succession of a business.
Looking historically, I conclude that JB Hi-Fi is resilient to most future disruptions that their supply chain could face. The most recent hurdle that not only JB Hi-Fi faced, but also the rest of the world was the Covid – 19 Pandemic. According to their 2022 annual report, it proved that they were adaptable to the changing environment by implementing an increased focus on online sales and incorporating click-and-collect to adhere to government restrictions. The 2021 financial year showed a 63.7% growth in shareholder earnings per share and a 12.6% increase in sales indicating that they not only have a demand for the product that they are offering, but they can also adapt and succeed when there is an increase in demand (JB Hi-Fi, 2021). They also identify that people are one of the largest assets within their business, as their customer service is one of the main competitive edges. As the Australian market is entering an economic downturn that has not been observed in the past 30 years, having the ability to recruit and sustain the staff will be one of JB Hi-Fis’ largest challenges to date. JB Hi-Fis’ proven ability to have strong relationships with stakeholders, and their strong financial foundations leads me to believe that they will be able to adapt and provide incentives to attract and maintain talent in intrinsic manners such as praise, or extrinsic such as monetary bonuses.
There are two recommendations that I would suggest JB Hi-Fi implement in their supply chain, the first being: Increased investment in staff. Due to the current environment as discussed earlier, it is paramount to ensure that customers are still maintaining the relationship and loyalty that they have with the business by ensuring that their sales staff and customer support teams are valued intrinsically and extrinsically. With the current state of the world, with an increase in digital technology isolating people, I think people will highly value and prefer to speak to a sales staff member rather than purely choosing an online shopping option. Especially with the increase in money that people are spending, they will want to try the product before they buy it.
Finally, I recommend that JB Hi-Fi continue to invest in technology such as AI to continue to improve their inventory management processes and their general warehouse operations efficiency. Adopting systems that companies such as Amazon utilize would be a significant financial investment but something that I believe would propel them into the future and ensure that they do maintain that competitive edge over their competitors.
In conclusion, JB Hi-Fi has established itself favourably in the Information Technology retail sector within Australia. The company’s supply chain model, although flawed, is currently functioning relatively efficiently. With the introduction of a more refined artificial intelligence that can help monitor stock levels more accurately and a prediction of supply demands that is programmed to anticipate future demands more holistically. Further, a continued focus on improving and developing their staff to ensure that customers can depend on their superior customer service will be the cornerstone as to how JB Hi-Fi maintains its competitive advantage in a saturated market.
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