Coles to modernise supply chain, says Wesfarmers

Wesfarmers has announced that Coles has entered into a Heads of Agreement with Witron Australia. Together, they’ll develop two new “automated ambient distribution centres” for Coles over a five-year period.

Witron Australia is a subsidiary of Witron Logistik + Informatik GmbH (Witron). Wesfarmers describes the company as “a market leader in the design and realisation of dynamic warehouse and order-picking systems for distribution centres”.

Long-term investment

Wesfarmers Managing Director Rob Scott says the decision follows an extensive evaluation process and assessment of global best practice. The goal, he says, is to ensure the project supports Coles’ strategy in the long term.

“We’re pleased to partner with Witron, a global leader in this field, to invest in world-class technology to modernise Coles’ supply chain,” Mr Scott said. “This investment is expected to deliver significant productivity improvements over the medium to long term.”

Coles Managing Director Steven Cain says the investment demonstrates Coles’ commitment to modernising its supply chain. Already, it delivers more than one billion cartons to stores each year.

“Coles is committed to improving efficiency and stock availability in stores,” Mr Cain said. He added that he expects the investment to “lower supply-chain costs, provide safer working environments, and enhance our business competitiveness”.

Capital expenditure

Coles will manage the total investment needed to develop the new distribution centres within its overall capital-expenditure budget. It will do this by applying its established capital-allocation processes and return hurdles.

The supermarket chain took future capital-expenditure requirements associated with this investment into account when determining the appropriate level of net debt for Coles as a standalone company. The incoming Coles Board also supports the investment.

The 2019 financial year capital expenditure associated with this project is part of Coles’ net capital-expenditure guidance of $600 million to $800 million.

Coles expects to recognise provisions of about $130 million to $150 million before tax in the 2019 financial year. These provisions relate to redundancies and lease-exit costs for existing distribution centres that will close over a five-year period.