Analysis Of The Strategies Of Wal Mart's Supply Chain Management
Wal-Mart is an American operated discount stores that is one of the largest retailers in the world. It was founded in 1962 and began its journey in rural areas. Thereby, avoiding direct competition with larger retail gains. As the company grew Walmart implemented new retail formats such as Sam’s Club (1983) and Supercenters (1988). Within a decade, Walmart became the largest grocery store in the united states. The company place customers at the forefront of their business model through cost controls and an effective distribution network. To facilitate their continuous growth, Walmart has removed the middleman link and began to deal directly with manufactures. This strategy reduces redundancies in their SCM, reduce cost, manage products in bulk and offered suppliers a guaranteed of consistent business. This strategy lead Walmart to be regarded as the industry leader in supply chain management. They have pioneered many technological and efficient SCM practices.
Logistics Functions
Logistical functions are the keys that have enabled Walmart to have the competitive advantage in the retail industry. The company focuses on improving operational procedures and on demands of customers. In order to manage Walmart’s huge inventory across the various distribution centers and stores, Wal-Mart’s operates a 24 hour automated distribution centers. These centers are served by Wal-Mart’s 6,000 trucks and is the foundation of their supply network providing the most cost efficient and guaranteed delivery of products. In the united states, the company has 152 distribution centers.
When the company enters a new geographic arena, they determine if the area requires a distribution center to support the stores to be built in the area. Each distribution center supports more than 50 retail stores within a 250-mile area. Once the distribution center is built, stores are built around and the distribution network is optimized. An example of this is the distance trucks travel to deliver to a retail store is shorter. The reduced distances decrease transportation costs and lead time. The shorter lead time means the safety inventory is reduced leading to less handling of finished goods. In addition, with the weekly delivers from distribution centers, shortages can be corrected on the next scheduled delivery with less lead time.
Furthermore, to make the distribution process more efficient, Walmart utilize the logistics technique known as ‘cross-docking.’ This system integrates intermediate nodes into a transportation network so that shipments are consolidated to full truckloads and economies of transportation are realized.. The finished goods are picked up directly from a supplier, sorted at the distribution center and then shipped to the customers directly so that deliveries by large suppliers can be broken down according to the demand submitted by the stores. This leads to less handling and storage of finished goods.
The three types of cross docking system that Walmart utilizes are consolidation arrangements, continuous cross docking and deconsolidated arrangements. For consolidated arrangements various smaller loads from different shipments is combined into one truck to form full truck load shipments. Continuous cross docking is the simplest ad fastest method. Products are received and immediately transferred to an outbound tuck for delivery. If the trucks arrive at different times, they will acquire wait time. Deconsolidation arrangements is the reverse of consolidated, this method has large loads broken down and delivered directly to a customer.
In cross docking, suppliers receive requisitions for different goods from a store and then forwarded to the suppliers who states if they can supply the goods requisitioned and lead time need schedule delivery. In the cases where the supplier had the goods on hand, the goods are directly forwarded to their staging area. The goods are packed according to the requisition received from the various stores and then directly sent to the applicable customers. Cross-docking helps simplify the warehousing and distributing of products allowing Walmart to focus on a demand chain rather than a supply chain.
With the sentiment that that the best ware-housing is no warehousing at all. However, this is impractical, but cross-docking in its various forms provides alternatives. When properly executed and monitored, it can serve as a tool for synchronizing the supply chain, and for significant reducing space and labor. With frequent communication and cooperation between stores, distribution centers and suppliers, Wal-Mart has utilized cross docking as the foundation of its supply chain and optimized the system to reduce the safety level stock and lead time meeting customer demand in a timely manner.
Inventory Management
With the extensive supply chain management system that Walmart has built, inventory management is critical to the company’s success and operational effectiveness. Effective inventory management has cemented the company’s competitive advantage in the retail market. The company’s strategies for different business areas are linked to inventory management in terms of how the system will support or benefit through a concise and innovative inventory management. In this regard, operational strategies are implemented in inventory management directly correlating to the company’s operational management.
Walmart manages a variety of products and these products are classified in to four main types of inventory. The first type is finished goods inventory. The finished goods arrive at Walmart stores directly and are replenished on a routine basis. These goods are always on hand in Walmart stores for consumers to buy. The second type of inventory is transit inventory. These goods are held in transit for extended periods of time and track thought Walmart’s informational system. They are utilized to replenish the finished goods inventory. The third type is the buffer inventory that is used to offset fluctuating demands. To maintain stocked shelves, this buffer inventory is on hand to satisfy sudden increases in demand in regard to current sales predictions. The last type of inventory is anticipation inventory. Similar to buffer inventory, this type of inventory is on hand for only seasonal changes and is utilized to satisfy the demand during that time frame. For example, major holidays such as Christmas, Black Friday and Thanksgiving.
The inventory model that Walmart has implemented is a vendor-managed inventory model. In this model, suppliers access demand and requisition data from the company’s information systems. With this access, suppliers can utilize this data to view stock levels and coordinate the shipment of additional goods to Walmart. This has the added benefit of reduce lead time, by shifting the inventory management procedures onto the suppliers. Furthermore, vendor managed inventory model reduces the cost in storing and inventorying of goods. Therefore, the financial and human resource expense for inventory activities is not carried by Walmart but passed on to the suppliers directly.
This inventory model was employed to reduce or prevent the bullwhip effect. By utilizing vendor managed inventory and crossdocking transportation system. Walmart has developed a system that minimizes storage needs and eliminates the need for in between storage. This ensures that only the inventory that is needed for operation is delivered to stores. In addition, Walmart uses various measures to evaluate inventory performance. Examples of these measures are inventory turnover, stock-out rate and inventory size. The inventory turnover is the rate of inventory that is sold out and replenished. It is used to measure the cost of storing each item in stock. The stock-out rate is the frequency that the on hand inventory becomes insufficient in satisfying customer demand. The company desires a lower stock-out rate to ensure that all demand is fulfilled. In addition, the company uses the on hand inventory size to gauge the cost of inventory management. A smaller inventory cost less and is reflected in the low prices offered by Walmart.
Quality Management
These low price savings are also founded on the relationship of Walmart and their suppliers. Walmart differs from other retailers regards to their vendor management. All Wal-Mart suppliers are obligated to fulfill a minimum requirement and abide by Walmart’s guidelines. The minimum supplier’s requirements are composed of three components. These components are insurance, food and safety and health and wellness requirements.
Wal-Mart requires that all approved products to be sold in their store to carry liability insurance. This requirement is to ensures that all liability costs are covered in case of a lawsuit related to the supplier’s goods. For the suppliers who are providing goods for resale, they are required to specify the following information; Commercial general liability insurance, automobile liability insurance, workers compensation/employer’s liability insurance, Umbrella/Excess Liability insurane.
For potential suppliers of Wal-Mart, there are certain criteria that must be met when supplying food related products. Their procedures for storing, handling and preparing of food products to prevent potential health hazards are evaluated. This assessment requires that all food product suppliers, regardless of the company size, must obtain full GFSI certification (Global Food Safety Initiative) and facilities registered with FDA Bioterrorism Registration. In addition, suppliers that import’s goods must comply with inspection requirements to ensure all products meet the regulatory requirements state that the goods will be sold in and the food market.
The final criteria is health and wellness safety requirements. These products are over-the-counter drugs, dietary and nutritional supplements and cosmetics containing medicinal ingredients. For suppliers to sell these products in Walmart stores, they must comply with the Federal state and local regulatory requirements to become a supplier. Suppliers must also ensure that all facilities providing goods are registered with the FDA (Food & Drug Administration).
As a company that provides its suppliers with exposure to more than 300 million customers each week in more than 10,000 retail units in various countries, it is paramount that suppliers comply with a stringent standard for goods. The company focuses on risk assessment, preventive controls and monitoring to ensure that the best quality goods are sold.
Purchasing and Supplier Relationship
Wal-Mart’s relationship with suppliers is based on a lawful and fair business practices. With this legal and ethical transparency, suppliers and buyers are on the same page and have the trust that the products sold meet all federal and local requirements. Walmart’s vendor managed inventory system achieves a smoother flow of inventory and helps to ensure that products are always available to customers on store shelves. This process reduces Walmart’s operational costs and translates to more savings for customers due to lower prices.
Walmart is the number one retailer for general goods, and as such many companies rely on the retail giant for more than twenty percent of their revenue. Walmart leverages this power to keep their prices lower than the competition. The pressure on suppliers to lower prices has resulted in layoffs at certain factories, changes in manufacturing inputs and processes, and even the transfer of manufacturing processes to foreign countries like China where labor is cheap. This pressure is seen in the Lakewood Engineering & Manufacturing Company, a fan manufacturer based out of Chicago. In the early 1990s, a 20-inch fan cost $20 and Walmart pushed for the price to be lower. Lakewood restructured their production process, which resulted in the layoff of workers. In addition to adding pressure on the company’s suppliers to lower their prices for parts and the company opened a factory in China. where workers are paid less resulting in lower operational cost. By early 2000, the price of a fan in Walmart had dropped to $10.
Walmart also empowers its suppliers with full access to their sales data through the retail informational system link. This system provides a way for suppliers to manage their own products through the data that includes inventory volume, gross margin and inventory turnover. Essentially giving the decision of inventory management role to the suppliers and reducing stock outs or excess inventory.
Customer Relationship Management
Walmart also utilizes the data gained from supplier’s sales and inventory turnover to improve CRM strategies and anticipate or respond to consumer’s needs. This is done through data mining, which enables Walmart to discover patterns in sales data. These patterns provide product recommendations to users based on previously purchase products or products that were bought after the purchase of a particular product. An example of this is through data mining, sales analysts at Walmart in real-time found that a specific cookie was popular across all stores but two stores had no sales. After investigating the situation, it was discovered that simple stocking oversight caused the cookies to not be added to the shelves for sales. This issue was corrected which prevented further loss of sales. With effective data mining, Walmart has increased its consumers and inventory turnover rate.
In addition to utilizing data to personalize the shopping experience for consumers. Walmart has utilized various strategies to ensure customer loyalty. These strategies begin with the employees. They are the frontline face of the company. This policy starts at the door where customers are greeted by greeters, adding personalization to the shopping experience. Walmart greeters meet customers at store entrances. Greeters at may assist customers with cart selection, offer coupons or product locations, or simply welcome people to the store.
In addition, Walmart has introduced loyalty programs that rewards customers with added discounts on their instore and online purchase. One such reward program is Walmart’s savings catcher. This program is designed that if customers can find a local competitor with a lower advertised price on something that they recently bought from Walmart. Walmart will make up the difference by giving them a Walmart Rewards eGift Card or even a Bluebird Card by American Express. These cards are redeemable only in Walmart’s stores leading to increase customer loyalty. Another rewards program is offered through Walmart’s money card program. The new program is called 3-2-1 Save and gives cardholders a chance to earn rewards on their purchases. The breakdown of rewards is that customers can earn 3% back on online purchases, 2% back when you fill up their tank at Wal-Mart or Murphy USA gas stations and 1% back on products bought at Wal-Mart or wherever Wal-Mart credit cards are accepted.
Furthermore, Walmart offers daily and monthly coupons on their already low prices. This is utilized to retain customers and suppliers use coupons to attract customers to their products. In addition to the sample carts that Walmart offers for customers to try new products. These services forms a habitual shopping behaviors centered around saving on goods that are purchased in store or online.
Additionally, Walmart offers the option to purchase your groceries or products online. Walmart sets the prices for the online purchases to be the same as in store prices. These purchases can be picked up in the store or delivered to the consumers at the designated pick up area. the time for pick up is set by the customer and they are given a notification minutes prior to allow for last minute additions. This service creates ease of convenience for customers and attract customers that are unable to pick up their groceries in store.
CRM practices are meant to draw and retain consumer’s attention. Loyalty programs are based on the concept that a loyal customer better for the company’s success. Therefore, it is the first priority of a business to increase the number of the loyal customers. Walmart has succeeded in this art by offering low retail prices, ease of convenience, stocking a broad variety of goods and rewarding customers for shopping.
Conclusion
As one of the largest retail store Walmart has utilized a huge number of strategies in order to manage their supply chain efficiently. These strategies have led to a vendor managed inventory that reduces operational cost. By reducing the volume of good stored and ensuring that only the type or need goods are delivered to the stores through crossdocking and strong informational management systems that gives suppliers a real time view of their inventory levels. Walmart also provides analytics for supplier to evaluate their inventory turnover rate and stock out rate. There by reducing the chance of the bull whip effect. Furthermore, Walmart’s quality management ensures that all federal and local requirements are met before product is sold in its stores. Which give customers the trust that Walmart is invested in their customers and their demands. Walmart demonstrates this through their CRM strategies and their unwavering commitment to saving people money.
