Supply chain management at Wal-Mart - Essay Example

Executive summary – supply chain management at Wal-Mart In 2006 Wal-Mart Inc’s sales stood at US$312.4 Billion with operations spread over 15 nations, making it the largest retailer in the world by far. The nearest competitor was Carrefour SA from France which had recorded sales worth US$88.2 Billion. The substantial lead of Wal-Mart has been accorded to its effective management of the supply chain which is the focal point of the discussion. However, by 2006 rivals beginning to adopt similar management practices to Wal-Mart were catching up and Wal-Mart, in recent quarters in spite of its innovations in terms of cost saving initiatives was having difficulties in realizing its self imposed goal of keeping inventory growth down to half the level of sales growth.

It is thus now on the lookout for further enhancements and adjustments to its supply chain management practices. Wal-Mart’s core strategy was to provide quality merchandise at everyday low prices which necessitated substantial cost management practices which would make the strategy sustainable. This was attained primarily through having effective innovations for purchase, distribution and retail management strategies. The purchasing strategy operated through Wal-Mart’s gradual development of an exclusive group of suppliers which partially if not wholly was devoted entirely to supplying to Wal-Mart.

The central strategy in its purchasing behavior was to eradicate the middlemen from the transactions and establish direct relations with the producers. Gradually, Wal-Mart’s largest suppliers began to devote entire offices to handling supplying to Wal-Mart stores in bulk. The scale economies reaped thus allowed a significant lowering of purchase prices. Additionally, through sourcing products globally and directly from producers, Wal-Mart was able to become the sole buyer which therefore had huge control over prices.

This led to development of private label, low priced alternatives to various branded merchandise which appealed to people and contributed significantly to enhanced sales. Wal-Mart’s distribution strategy has also been one of the core areas that have contributed substantially to its competitive advantage. The location of new stores has strategically been chosen so that each distribution centre can cater to a clout of outlets. Wal-Mart has not only saved enormously on shipping costs by developing its own trucking fleet but also has been able to harness substantial revenues by allowing its truck fleet to work for hire whenever they are not busy working for Wal-Mart.

Wal-Mart has saved significantly by working together with suppliers to standardize sizes of shipping cartons which has been mutually beneficial since Wal-Mart’s orders arrive in bulk. Wal-Mart’s retail strategy of providing everyday low prices also generated considerable competitive advantage since it made advertising individual low prices unnecessary. Advertising frequency also thus was regulated and the additional savings could be channeled back to further price reduction initiatives. Wal-Mart was able to work with suppliers to have them fund price rollback programs which the companies benefitted from as well since there was expansion of brand sales.

Wal-Mart stores have other cost saving operation designs as well. In store temperature control is centralized, operated from Bentonville. Additionally, by utilizing information systems with real time updating, inventory management is also centralized which leads to significant scale economies. Further, advertisements and inventory holdings are customized in accordance to the customer base. Wal-Mart’s other two sources of its fundamental competitive advantage in cost management derived from centralization leading to economies of scale as well as regulation of arbitrariness and its policy of being a non-union company.

Wal-Mart has recently adopted two additional innovations in its supply chain. The first policy, “Remix” introduced shipping of fast moving merchandise exclusively from high velocity food distribution centers characterized by less automation to improve shelf loading time. The second policy of mandating radio frequency identification (RFID) tags on merchandise shipped by Wal-Mart’s top 100 suppliers allowed increased inventory tracking ability with the goal of increasing rates of in-stock items at stores.

Wal-Mart is trying to achieve a goal of reducing inventory growth to below half of its sales growth figure but has run into difficulties in 2006. Although in places like Mexico and Canada Wal-Mart still enjoys the position of being the largest retailer, it has been outcompeted in the UK and pushed off its top spot. It has had to pull out off South Korea and Germany and admitted to suffering the first profit decline.